One of the main challenges facing print firms at the moment is cashflow. But although banks are reluctant to lend, that doesn't mean that they aren't willing to lend full stop - there are still a number of tried and tested routes that companies can go down to make sure that the cash keeps flowing.

A popular method for printers looking to raise cash is receivables finance. This market has gone through something of a boom of late. According to figures from the Asset Based Finance Association (ABFA), the sector was worth £208m in 2008- an increase of 9%. Breaking this figure down, factoring in the UK was down slightly at £19.4m - a dip of 4%
compared with 2007. However, invoice discounting was up 9% to £175.2m.

Within receivables-based finance, invoice discounting and factoring have become particularly attractive options for the printing industry in recent years. Essentially, factoring involves assigning the beneficial ownership to a third party, a factoring party, which process invoices, allowing you to draw loans against the money owed to your business.

"These companies, in effect, offer a debt collection and ledger management service," explains Paul Holohan, chief executive at Richmond Capital Partners. "They provide a fast repayment against the sales ledger, increasing working ­capital and improving cashflow."

Near-instant payment
Invoice discounting is similar, but allows the print firm to maintain control of its sales ledger and existing methods of credit control. "Instead of you waiting 60 to 90 days to be paid by the customer, the funder provides available cash on the same day or a day later," explains John Whitfield, partner at Grant Thornton. "This method of funding provides a flexible source of finance that increases the liquidity of the company. For a lot of SMEs, it can replace an overdraft facility and be a very good tool."

Print companies are well-versed in using such tools, but now that the recession has engulfed the economy, there's a problem: lenders are less ­willing to hand over the amounts of cash they used to. In the boom times, companies could claim up to 80% on invoices; today, there are anecdotal reports that indicate that figure has dipped to as low as 60%. And while the banks may still be ­prepared to offer the service at a reduced rate, companies wishing to take advantage of this option are now required to jump through more hoops than before.

"In cases where people are finding that the funding level has been reduced, it could be because the company in
question is inadequately financed and the balance sheet isn't sufficiently strong," says Grant Thornton's Whitfield. "In these cases, the invoice discounters and factoring companies are concluding that their exposure is at more risk. It should be remembered that invoice discounters and factors are providers of debt, and that the strengthening of a balance sheet should be achieved by further injections from the provider of equity."

He adds that print is considered a high-risk sector right now due to the sheer number of insolvencies in the past year. "In the print sector, the very nature of the customers means that the ledgers are proving quite hard to collect in insolvent situations," says Whitfield. "The lender lends against the value of the invoices, but is always conscious that, in an
insolvency, they want to recover their money. Therefore, with the increasing numbers of failures among print companies' customers, directors should ensure that the company's balance sheet is sufficiently robust to absorb the impact of a failure and associated bad debt from one of its customers."

If you can do that and show the lender that you have a solid balance sheet, then there are plenty of positives to going down the asset-based lending route. As well as giving a firm a rapid injection of cash, factoring can be a cost effective way
of outsourcing your sales ledger, freeing up time to focus on other issues.

"Useful information about the credit standing of your customers may be provided and assist in negotiating better terms with ­suppliers," adds Richmond's Holohan.

"Factoring can be a very good financial resource throughout the business planning process. It can also command more respect with customers, who may make payment quicker as a result."

Another option is confidential invoice discounting (CID), where a firm's customers are not informed of the arrangement with the lender. Confidential or otherwise, it's worth shopping around to find the best deal (the ABFA website provides ­information on member companies - www.abfa.org.uk).

"Interest and fees are involved, with a typical interest charge of 1.5% to 3% over base rate, with interest calculated on a daily basis," explains Holohan. "In addition, credit ­management fees apply, typically from 0.7% to 2.5% of ­turnover for factoring, and 0.2% to 0.5% of turnover for CID, as only finance is provided in this arrangement. Credit protection charges will also be levied if the factor is liable for bad debts."

While David Bunker, director at Close Asset Finance, agrees that such arrangements can raise working capital for the print industry, he reckons that's the only plus side. "You have pledged the sales ledger to the bank. Once in, it's ­virtually impossible to trade out of it."

Bunker adds that, like an overdraft, invoice discounts and factoring facilities can be charged at the bank's behest. "If the bank gets nervous for any reason, then it has the right to ask for an overdraft to be repaid in full on demand, or your credit limits get pulled back on factoring facilities. This can be a blanket arrangement that is applicable over the whole facility or particular accounts can be isolated and individual credit limits reduced."
And with printers being asked to reduce overdraft limits, he claims that banks are proactively looking to switch firms to invoice discounting or factoring.

Drawbacks
"The charges are usually more than for other facilities, especially if you're unable to invoice discount and go for factoring," says Bunker. "Bad or doubtful debts are usually wiped off your available funds straight away. If you're not using these facilities, you might have 30 to 90 days to prepare for the loss before the debt is payable."

Richmond's Holohan agrees that there are some ­disadvantages to factoring. "Ending an arrangement with a factor may be difficult as you will have to pay off any money they have advanced you on invoices if the customer has not yet paid them. Also, if sales fall, then you will have less cash available against invoices."

It's also worth bearing in mind that, as the printing industry is particularly vulnerable to customers not paying on time, going down the invoice discounting/factoring route could give the banks a firmer grip on your business, which is not good news if you're struggling to settle a debt with them.

"It is important not to get in over your head," cautions Holohan. "Don't confuse cashflow with profit. If the business is not sound, this issue must be addressed first. It is no use finding other funding if the business performance won't ­support the loans."

Both invoice discounting and factoring can perform an ­important function for a well-managed business - just make sure you go into your meeting with the bank manager armed with a strong balance sheet and don't over-commit.

TOP TIPS: INVOICE DISCOUNTING
Pros

• Gives you almost instant access to cash
• Can increase the liquidity of your company
• The asset-based lending market is on the up and there are 55 members of ABFA, giving printers the opportunity to shop around. You can even get quotes online
• Factoring may encourage some customers to pay their bills more promptly

Cons

• The cost will mean a reduction in your profit margin on each order
• The lender could demand you vet your customers and may have an influence on your business. Once you have pledged the sales ledger to the bank, it’s very difficult to get out of it
• Difficulties can arise in paying back the lender if your customers are late on their payments – a common occurrence for many in the volatile print industry
• If the bank gets nervous for any reason then it has the right to ask for an overdraft to be paid in full on demand or your credit limits get pulled back