Region’s SMEs are seeing ‘patchy’ growth

Bibby Financial Services has around 250 clients in Yorkshire and 150 in the North East, typically with annual sales of less than £5m and often trading with other companies in the North of England.

Those companies have not grown as much as expected this year, said Bibby, which has also seen a 10 per cent increase in the number of new clients as companies look for alternative funding.

Mark Storey, managing director of Bibby’s offices in Cleckheaton and Sunderland, said the rising demand was a result of the continuing credit crunch and more awareness of invoice finance, which is also known as factoring.

He said the lack of growth in turnover was due to larger SMEs “keeping funds back for a rainy day”.

“People are waiting for things to happen before they are prepared to push on,” he added.

The Government is pinning its hopes on small businesses leading the economic recovery, by creating jobs and boosting GDP growth.

Mr Storey said Yorkshire and the North East are trailing behind the UK average in terms of turnover growth.

He attributed some of this to a “cagey” approach to spending money in Yorkshire and “looking after what you’ve got”.

“The other challenge we probably have is that traditionally things start from the south and work northward.

“The recession started from the south and moved northward. The recovery seems to be doing the same,” said Mr Storey.

A survey of Bibby clients in the first three months of the year showed that more than a quarter of Yorkshire businesses were struggling and having to make cuts.

A company spokesman said: “It is vital that investment in the North of England is seen as a priority.”

However, Bibby is looking to recruit in client relationship services in Yorkshire in anticipation of growth in the next 12-18 months.

Mr Storey said: “The general economy will continue on its slow improvement.

“While it is like that, we have always seen in our market place a reticence among banks, until a balance sheet looks strong enough or the value of the security has recovered, to lend the money that helps to support the growth.

“That’s where factoring can really come into its own.

“Historically, we have tended to do more business as we come out of recessions. The challenge this time is that it’s a very slow, steady recovery.” Bibby lends money to companies against the value of outstanding invoices, based on the quality of debt and debtors.

Mr Storey explained why it can be essential. He said: “There are more businesses that fail because of a lack of cash than a lack of profit. They need to be able to make sure they can keep paying their suppliers and their employees.”

He said invoice finance has grown considerably in recent years, compared against traditional bank overdrafts.

“The more factoring facilities we provide, the more customers we are touching. So they then ask questions and understand it a little bit more and it rolls on,” added Mr Storey.

The invoice finance factor

Evidence of factoring can be found in merchant banking in the 14th century. But it was during the golden decades of economic growth following the Second World War that the practice really took off.

Invoice finance can be a lucrative business. Bibby Financial Services, which has a dozen offices across the globe, contributed a pre-tax profit of £34m to Bibby Line Group’s overall pre-tax profit of £31m. The Liverpool group’s other activities cover distribution, retail, offshore and marine.

Mark Storey, a former banker at Lloyds TSB, said: “We have plenty of cash available. We are well prepared to support businesses with up to £10m in funding, as long as the fundamentals are right.”