The figure has risen from £4.87bn last year, says the ABFA, despite the broken hopes that these stubbornly high figures would clear with the recovery of the fragile economy. The unsold stock represents 16% of the £81bn turnover of SME manufacturers. It can be difficult to move this inventory quickly to access finance more easily, which means possible issues for companies who need finance in a short amount of time.
Money held in unsold stock can put a stop on growth, as it may have been used for business development or R&D.
The AFBA claims that through asset based finance, they can unlock the value tied up in their inventory, and gain back the funding for business development.
With the inventory acting as security for the finance, which being, in effect, a type of secure lending, it can frequently be a more cost-effective financing solution than unsecured lending. The demand for this substitute kind of finance is increasing from businesses, with the value of funding secured against stock by ABFA Members raised from £374 million in 2011, to £584mn at the end of June, (a 56% increase).
Chief executive of the AFBA, Jeff Longhurst, says: “SMEs are finding it hard to reduce their inventory levels as customer demand remains subdued. But asset based finance can be used as a form of security to unlock the value in tied up stock.
Asset based finance can complement and invoice finance facility as well, allowing a business to improve its cash flow – which is especially important for SMEs.
By allowing companies to access vital finance, it gives them the opportunity to invest in their business, and means that growth doesn’t end up stalled by cash being tied up in unsold stock”
