Figures from Touch Financial, an independent broker and part of the SFP Group, show the number of deals closed has risen dramatically in the past three months and now represents more than a fifth (21%) of all new business enquiries.
Touch believes the sharp rise may indicate a change in strategy by the banks to steer customers towards an invoice finance solution.
Simon Carter, director of Touch Financial, said: "Factoring and invoice discounting have traditionally been popular cashflow funding tools for HR businesses and indeed many could not survive without it. What we have noticed in recent months, however, is the number of deals closed has risen significantly.
"This might suggest to us that banks have more of an appetite for factoring rather than traditional lending or overdraft. It might also suggest that HR firms are more actively looking for funding to expand. And it could mean, logically, that if HR firms are expanding, then their services are in demand, and that businesses are actively looking to recruit."
Carter says that HR businesses suit factoring because their primary asset is their sales ledger: "An invoice is a very tangible debt," he added, "and if a business should fail, the lender can get to the ultimate customer more easily and therefore there is less risk. The net result is that banks are prepared to agree a higher advance, sometimes as much as 85%-90%, and this is well above the industry average. A greater advance means more money to invest, and the greater the opportunity to grow."
The size of new deals varies, with one of the largest closed in Q1 2010 involving a £20 million turnover business that switched from an overdraft facility to invoice discounting. "This is a typical example of a business that is restricted by an overdraft and looking at more creative forms of funding," says Carter. "Because the facility is linked to the sales ledger, the amount available grows as the business grows. Success breeds success."
As well as higher advances, Carter believes that businesses are being tempted by low service charges: "Service charges appear to have remained static for the past 18 months," he says, "and this is no doubt helping to drive enquiry levels."
As well as HR, the wholesale/distribution sector has also seen a steady rate of factoring enquiries, although a spike in Q4 2009 was followed by a sharp decline in Q1 2010. "It is a complex sector," Carter concludes, "and any green shoots may still be some way off."
