Small Talk: Cameron plan to ease cash flow for SMEs could be a winner
Having failed to force Britain's banks to lend more to small and medium-sized enterprises, it appears the Prime Minister now hopes to persuade our largest companies to do their bit instead.
Days after data from the Bank of England suggested bank lending to SMEs was continuing to fall, David Cameron met a number of FTSE 100 bosses at a Downing Street summit. He hopes to persuade them to sign up for an initiative that has already been pioneered by a small number of companies, including Vodafone and Rolls-Royce. He believes it could boost the credit supply to SMEs by as much as £20bn.
The idea, known as "supply chain credit", is based on the strong credit ratings of very large companies. Mr Cameron wants them to notify suppliers' banks once they've cleared invoices for payment. Suppliers would then immediately be able to ask their banks to lend them 100 per cent of the money they're scheduled to receive.
The scheme works because the banks are only being asked to lend against invoices a large creditworthy organisation has already agreed to pay. They can therefore make advances for the full amount of the invoice at very low interest rates. Their suppliers effectively get access to the money they are owed much more quickly, improving their cashflow.
Cashflow problems have been driving businesses to the wall during the recession. Many SMEs, while technically solvent, have found themselves unable to meet bills or even to pay staff because they've been waiting to be paid by suppliers. Banks have not always been willing to offer overdraft facilities to bridge the gap.
John Walker, chairman of the Federation of Small Businesses, thinks the scheme could work well. "Nearly three quarters of small businesses report that they have been paid late in the past year, placing a huge strain on cash-flow and meaning they struggle to realise ambitions to grow," he says. "We encourage large companies to support and implement the scheme, so it can play its part in improving confidence and encouraging growth throughout the supply chain."
In truth, the proposal is not very different to the 'factoring' services supplied by several specialist lenders. They lend against unpaid bills in exactly the same way but, as they don't have guarantees invoices will be paid, they tend to be more cautious about the size of the advance they'll make.
Still, Christopher Shaw, the chief executive of one such lender, Platform Black, thinks the Government's scheme could work alongside the service his sector offers. "These proposals have the potential to give SMEs a huge boost, by freeing up millions of pounds that would otherwise be tied up in unpaid invoices," Mr Shaw argues. "The Prime Minister's initiative is both a recognition of the value of [the invoice finance] model, and a huge shot in its arm."
The £20bn target Mr Cameron has set for the scheme looks ambitious.Nevertheless, supply chain credit has plenty going for it.
Jeweller to the First Lady has world in its sights
The upmarket jeweller Astley Clarke, whose products are worn by celebrities including Michelle Obama, is planning a rapid global expansion. Founded by London-based Bec Astley Clarke in 2006, retailer sells everything from charm bracelets to engagement rings online as well as through stores including Selfridges, Harrods and Liberty.
To help with the expansion, Ms Astley Clarke is looking for a managing director. In April, the business received further funding from Carmen Busquets, the founding investor and director of net-a-porter.com, whose total investment is $1.2m (£750,000). She is now on the board.
The Astley Clarke website relaunched last month and sells its branded jewellery and other makes including Solange Azagury-Partridge, Mizuki and Hillier. The business launched a US and Canada website earlier this year.
Small Business Man of the Week: Angus Elphinstone, founder, Anyvan
I was working for my removals company, White Van Gentleman, when I started thinking about a way to shake-up the logistics industry. In 2007, when the whole economic recession started to kick in, all my clients wished to save money but still wanted to receive the same kind of service.
Many would ask me to deliver their goods within a flexible timescale, based on when I or any of the vans were going in the same direction and could do it for a reduced price. From this alone, I knew the internet could provide the perfect marketplace platform to match customers who needed items to move with companies that are already making those similar journeys.
I launched Anyvan – a website where users enter what they need moved, and where, and vans and courier firms bid for the business – towards the end of 2009. It couldn't have been a better time: people really needed to save.
Today, just after its 3rd birthday, we're achieving 1,800 jobs per day on the website. More than 14,000 firms have signed up and we are seeing an ever increasing amount joining. I'm aiming for 3,000 delivery or removal requests by the middle of next year."
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