Barclays on Export Week: Asset-based lending as an international trading tool

ASSET-based lending (ABL) is an often overlooked but increasingly an important tool for UK businesses looking to expand their exporting activity. 

ABL is a generic term, but typically involves a company securing funding from one or more of its receivables, inventory or plant & machinery (P&M) assets.

For a UK business looking to fund its trade cycle with export customers, there are two key – but potentially very diverse – attractions of this approach, as Richard Haighton, director of trade & working capital for Barclays in the Midlands explains.

“Firstly, a company could look to leverage the asset generated by the export trade – likely to be the export receivable – thus matching funding, credit and exchange risk to the underlying transaction,” he said.

“For example, an invoice for a sale of product to Europe, China, USA or other territory could be discounted here in the UK to provide early financing against the future receivable. 

“This may also enable the seller to offer credit terms to a buyer, or extend terms beyond the period with which  the UK exporter may otherwise be comfortable, which itself may help to drive sales. 

“If coupled with a credit insurance policy or bad debt protection product from the discounter, this could be very powerful solution to any company looking to fund the working capital cycle created by its export activity.”

All this week Barclays will be writing about various aspects of trading internationally to coincide with UKTI’s Export Week. To read more click here.  

Traditionally, receivables finance was based around invoice discounting or factoring but, increasingly, Barclays is seeing large and sophisticated corporates take a more bespoke approach to their financing requirements, looking at funding individual debtors or even individual receivables for example. 

In some circumstances it is even possible to fund these receivables on a non-recourse basis, and with appropriate auditor sign off take them off balance sheet too.

Haighton added: “An alternative to using the receivable created by the export sale to raise finance is to use UK-based assets (UK receivables, inventory and P&M) to secure finance. 

There are some good reasons why this may be beneficial to the exporter:  They may be unable to secure finance against the export receivable for corporate and/or country risk reasons, there may be an attractive price advantage to using UK assets or perhaps FX management would drive this approach. 

Again, there are now myriad ways to fund even the receivables element of these assets, and a bespoke solution can usually be found.”

Often, your financing partner can provide invaluable feedback on the merits and problems associated with any planned export activity. If your bank or credit insurer is unwilling to take a risk against a particular debtor or even country, for example, why should you? 

Alternatively, they can advise on the best way to structure a transaction, providing some “do’s and don’ts” on the terms of trade which could mitigate risk, improve cashflow or even increase the profitability of the transaction.

ABL is effectively an evolution of the mature factoring and invoice discounting markets that now provides numerous funding options for SMEs, large and even global corporates alike. 

Haighton adds: “In the last quarter of 2014 alone Barclays arranged over £2.5bn of limits for companies in a variety of a jurisdictions looking for tailored ABL solutions, and this list includes some household names. 

“Equally, we are offering marrying these facilities with more traditional export solutions (bonds and letters of credit for example) to ensure a “whole of trade cycle” solution. 

“Our advice is to make sure that ABL and receivables finance is at least on your list of potential export funding solutions.”

This advice is borne out by the fact that the UK & Ireland asset-based finance market enjoyed its most successful year in 2014 according to the Asset Based Finance Association. 

The asset-based finance sector in the UK – which is predominately based on releasing funding from a client’s receivables or invoices – funds more than 43,000 businesses in the UK & Ireland.    

2014 saw client sales volumes increase 7% to £292.2bn (2013: £272.0bn) and advances grow by 9% to £19.4bn (2013: £17.8bn). Advances to clients are now at an all-time high for the second year running and are 38% higher than during the peak of the recession in December 2009. 

Growth in 2014 was driven by larger clients – 95% of the year-on-year growth was driven by businesses with turnover in excess of £10m and as at the end of 2014 there was an additional £20.5bn of unused facilities agreed with clients which could be drawn down if required.  

To find out how Barclays can support your exporting ambitions, please contact James Webber, head of trade & working capital in the Midlands on 07766 362470 or by email at james.webber@barclays.com