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Wealth Management

KEY TRENDS IN THE ASSET FINANCE SECTOR

Asset finance is playing an increasingly important part in many businesses, providing the funding needed to purchase the equipment, machinery or capital that helps to facilitate growth. Last year, the sector saw significant growth, which looks set to continue over the coming 12 months despite the uncertainty surrounding Brexit and rise of new technologies and alternative finance platforms. Here, Rory Dunn, managing director of Portman Asset Finance, looks at the key influences for the industry this year.

 

The economic landscape
No industry is immune from the uncertainty of Brexit, and most businesses will have contingency plans in place for whatever outcome. In some cases, this means investing in the business to stay ahead of their competitors, weather a downturn, or make the most of new opportunities in the market.

 

From our experience, we have found that there will always be strong demand in the asset finance sector, regardless of market conditions, as many businesses require investment for consolidation or growth.

 

The implications of Brexit are not yet known, but we are confident that out of the confusion will come opportunities. In the case of a ‘soft’ Brexit, we will most likely see business as usual, with companies seeking out investment for equipment at a rate that has been experienced for the last 12 months. If the uncertainty continues or the UK leaves without an agreement, finance companies may still see a rise in demand, especially from firms that export and import goods in need of a financial injection to see them through the temporary uncertainty.

 

People investment
A forward-thinking asset finance provider will always look for the most dynamic candidates to support its continued growth, in every area of the company. Whether this is in a sales position or a service support role, firms should be on the look out for the best talent or experienced experts to focus on improvements to their offering. While companies outside of major cities may believe they’re at a disadvantage, this is not always the case. Recently, we have noticed a shift among skilled brokers moving away from London as they search for more desirable living costs and standards.

 

Understanding demands
No matter what the year brings, one of the most common barriers to business growth is access to affordable and flexible finance options. The level of demand reflects this – over the last year Portman Asset Finance has seen an increase of 320 per cent in finance enquiries and a 35 per cent rise in the amount of finance arranged for businesses.

In 2019, I believe that the most successful asset finance firms will be able to understand the complexities of a lender’s demands and supply investment to sectors that are stagnant or in a current state of decline. With ongoing economic confusion, the number of sectors facing difficulties could rise, which may mean a higher demand for asset finance in the future.

 

Technological feats
The last few years have brought about significant developments in financial technology and with this, lenders have started to change their attitude towards disruptive fintech businesses entering the market. While these businesses can cater to a larger number of proposals, conversion rates for more traditional lenders appear to be much higher.
With the challenge of fintech businesses, established firms now have the opportunity to refocus their efforts, and bring a personal touch when dealing with customers. Directors should concentrate on understanding the client’s requirements and how they can fulfill them by delegating to dedicated and knowledgeable account managers. Firms should now be adapting technology into their processes so they can integrate and automate their financial and security data. With this, they can improve efficiencies and reduce the risk of fraud from their lenders

 

AI monitoring
Artificial intelligence (AI) and predicative analytics will continue to drive change to influence the invoice finance sector. With this technology, firms can now monitor a client’s financial position – after gaining their approval – and take a proactive approach to support cashflow.

 

This means lenders will be able to contact clients before they run into cashflow issues. Whereas previously, companies would search for invoice finance when there was an issue and they needed immediate support. In a state of emergency, owners and managers were more likely to make rushed decisions, and accept deals with higher interest rates.

 

This new technology, now being utilised by Portman Asset Finance, can intervene before the additional finance is needed, ensuring the client finds the best investment for them at the right time. In 2018, a survey of 1,000 UK SMEs – commissioned by The Prompt Payment Directory – discovered that 50 per cent of SME owners had been on the edge of bankruptcy due to late or outstanding invoice payments. 63 per cent admitted that late payment issues resulted in not being able to pay themselves at the correct time, and 20 per cent had delayed payment of staff.

 

Problems with cashflow cause a great deal of anxiety for business owners, but using technology that tracks any late payments can reduce this stress and free up directors to focus on running their business.

 

In our business, we have worked hard to integrate technology while also focusing on the personal side of the service so that we can protect our core business values. Digitalisation will not replace face-to-face relationships, knowledge and skills, so it is important for finance firms to retain human interaction.

For more information on Portman Asset Finance, visit www.portmanassetfinance.co.uk.

 

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Wealth Management

STOCK MARKET ANALYSTS DISCUSS HOW TO INVEST DURING A RECESSION

  • Online tool looks back at how world markets recovered after the last recession in 2008
  • Analysts take learnings from previous recessions to offer insight on how to invest during a period of instability
  • Certain areas of the stock market can increase in value during a recession

The economic crash due to Covid-19 is a unique event, however stock market experts have taken learnings from previous recessions to predict the stocks that may increase in value during this time.

IG Markets, Europe’s largest online derivatives trading provider, has taken learnings from previous recessions, using historical data and online tools such as Decade of Trade, which visualises world stock market trends over the 10 years since the 2008 crash, to provide predictions about the areas of the stock market to watch during an inevitable recession.

 

Stocks to watch during a recession

Under expansionary circumstances, stocks that have strong growth prospects such as healthcare and consumer staple sectors, for the future typically command lofty valuations and produce high returns, as investors bank on the company’s ability to generate more income as time progresses. This phenomenon typically results in high price to earnings (P/E) ratios like those currently present in some of the market-leading tech stocks.

In the event of an economic downturn, however, these profit-hopeful stocks are often discarded as investors align their income assumptions with slowing growth and lower consumer spending.

On the other hand, stocks with stable – but often more modest – income generation tend to be more insulated from dramatic stock shocks that frequently accompany recessionary periods. These stocks are known as “defensives” and, broadly speaking, include the utility, healthcare and consumer staple sectors. Given their profitability profiles, they become an important collection of stocks to keep an eye on when the broader market encounters a rough patch.

Consequently, a portfolio comprised entirely of equities is remarkably vulnerable in times of recession, particularly at the onset when losses are often steepest. With that in mind, it may prove beneficial to look outside of the equity market for some of the best recession-proof investments.

 

Gold can be an investment during a recession

XAU/USD is widely regarded as a safe haven asset for its stable store of value and tangibility. Further still, gold can act as an inflationary hedge, making it an attractive investment in times of recession and in periods of lower interest rates when inflation may threaten to take hold. Gold has demonstrated an almost innate ability to retain its value during contractionary periods, thus making it an attractive investment in times of uncertainty.

 

The US dollar: an attractive currency during recessions

Sharing similarities with gold, the US Dollar also boasts safe haven attributes. Due to its role as the world’s reserve currency and the backing of the world’s largest economy, the US Dollar is both incredibly liquid and sought after. Issued by the Federal Reserve, the Greenback is arguably the safest currency in the world and has become a quasi-currency of exchange in many nations where domestic currencies have had their purchasing power fall, due to inflationary pressures or other economic woes.

Consequently, holding US Dollars during periods of uncertainty or turmoil is often viewed as an attractive alternative to other assets. Evidenced in the Great Financial Crisis when the United States dragged the rest of the world into a global recession, the US Dollar surged almost 25% during 2007 to 2009 even as the Federal Reserve lowered interest rates to the floor.

The Dollar’s strength was largely owed to the fact that the Federal Reserve possessed ample liquidity and the US economy was soon in a position to recover while others were mired in recessions – some of which have never fully recovered.

Joshua Warner, Anaylst at IG Markets, said: “While there is a strong argument that a global health pandemic like Covid-19 has been on the radar of governments and institutions for decades, the lack of preparedness of most governments and businesses shows how unprecedented the current situation is.

“It is almost guaranteed that the UK will enter a recession in the coming months. The Bank of England (BoE) has said it is likely to be the sharpest one on record, while Chancellor Rishi Sunak has warned it will be a ‘severe recession the likes of which we haven’t seen before’.”

Peter Hanks, Junior Analyst at Daily FX.com, said: “With the benefit of hindsight and the lessons of the three most recent recessions, it can be argued the best recession investments are not stocks at all, but rather assets that retain their value even as growth slips. Therefore, if equity exposure is a must-have in your portfolio, the US Dollar and gold should also be given consideration – particularly for the risk-averse investor or one who suspects an impending recession.”

 

To learn more about the stock market over the last 10 years to understand future trends, please visit: https://www.ig.com/uk/special-reports/decade-of-trade

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Wealth Management

SECURING THE EVIDENCE FOR VAT AND TAX

Filippa Jörnstedt, Senior Regulatory Counsel at Sovos

 

Businesses are almost entirely digital in their nature. With sophisticated technology now in the reach of most, the measurement and reporting of business transactions have transitioned from slow, manual processes to being automated, allowing finance teams room to breathe. However, alongside the positives of these advancements, there also comes a responsibility to understand the wide-ranging requirements of governments worldwide when it comes to financial transparency.

Recently, we’ve witnessed a shift towards more continuous transactional controls and reporting schemes carried out in real-time, as governments look to reduce their VAT gaps and discrepancies in their economies. Historically, the pressure was on businesses to report their own transaction data, but with the new formats being used, governments are beginning to take matters into their own hands. This makes logical sense, as there is far more complex real-time data being submitted by businesses that governments have access to.

Filippa Jörnstedt

The figurative stick that is VAT control reform is often introduced together with a carrot: removing the need to collate and submit periodic reports, such as VAT returns, to the tax authorities. Ideally, this means less pressure on businesses.  That is, until a problem surfaces, such as data being interpreted in the wrong way, or a dispute arising about the timing of a transaction. Often, these problems originate from reporting being mishandled or through the clearance of transaction data, so keeping a rigorously organised and in-depth record of financial information is imperative for businesses to avoid these problems. Aside from this, it allows them to substantiate any government reports and fix any issues. The difficult aspect, though, is how to build these archives in this way.

 

Digital paper trails

In previous iterations, financial employees were responsible for collating and archiving paper invoices, receipts and other data to provide evidence of their business activity. So, the process of archiving isn’t new, but it needs to reflect the digital times we find ourselves operating in. Simply put, this isn’t a manual task anymore, but many businesses have seemingly just moved to e-archiving without too much thought to just how crucial it is to get right. Modern tax authorities are asking for specific details behind each transaction, paying particularly close attention to time and date, so the archive cannot simply be moved to a digital filing drawer.

Looking at a recent example, India’s reporting requirements now involve invoice data to be sent to the authorities in real-time, for pre-approval and registration onto a state-operated platform.  The invoice will only be considered valid following the generation of a unique Invoice Reference Number by the same platform.

Looking at this from an audit perspective, if a business is later questioned on a transaction then they need to be able to quickly find the correct evidence of that particular transaction, as well as any government response message in relation to that transaction, or risk major fines. Alongside India, also countries closer to home such as Poland and Finland are shifting the way they operate with invoicing and reporting, following Italy’s successful system change last year.

And this is a clear trend; audits into business activity are only going to become more precise and closer to real-time as further governments see the benefits of adopting these methods of tax control. Real-time reporting and mandatory e-invoicing makes sense more widely as these systems have proven to be very effective at reducing VAT gaps, with evidence of this going back decades in areas of Latin America.

 

An authority shift

As outlined, with further countries adopting real-time reporting or variations of this, the tax authority is becoming more central to processes as they receive and gather details on VAT owed by businesses. Reporting in this way makes sense, but pressure on finance teams to keep incredibly detailed data-trails is more important than ever. Tax authorities are increasingly building rich data records of their own as they are receiving more and more granular data in real-time. As a result, the source-of-truth no longer primarily lies with the taxpayer’s financial records, but instead with the tax authority’s ledgers.

To keep pace with this, businesses can no longer simply file away invoices digitally, but also need to record as much data as possible to corroborate the authorities’ records of their transactions. By doing so, they are building an evidence base to be able to dispute any queries or wrong decisions to safeguard their activity. Keeping this front of mind will make the process of addressing any problems far easier than relying on old, less-detailed archives.

Throughout the EU, there are many variations in archiving laws that need to be adhered to. German requirements are set out in their GoBD principles, but in Italy the regulations are far more technical and detailed, reflecting their tax setup. This Italian model asks businesses to provide a documented description of their archives, an overview of its process, but also a delegation plan to show assigned responsibility for those processes. This isn’t an easy set of requirements, especially with laws frequently changing.

The whole aspect of archiving has long been important, but now the stakes are higher; it’s not simply a box-ticking exercise. A complacent, old-school approach to both invoice and transaction data archiving could now result in severe repercussions for businesses. A robust digital strategy is vital.

 

Managing archives to reflect the new normal

Digitalisation does have the benefit of taking some of the pressure off businesses, but this switch in data authority from the business to the tax authority doesn’t mean less work. Regardless of where information is stored, e-invoices must be now kept centrally and be available at any time for those that may need them. Storing these individually, including specific supporting transaction data will mean faster access to relevant evidence for any issues that may arise. Fortunately, technology is now available to do much of the heavy lifting.

To keep up with continually shifting regulation and, importantly, keep compliant with it, businesses must examine how they manage their transaction data and how to ensure their VAT evidence locker is fully stocked. Because legislation may change, but compliance is always compulsory.

 

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