Credit Management March 2024

INVOICE FINANCE
WAX
AND WANE
What’s happening in the world of Invoice Finance?
BY SEAN FEAST FCICM
LOOKING at the data from UK Finance,
the industry trade body, tells some of
the story but certainly not all of it. In
terms of turnover, at £313bn in 2022, the
volume is high and is expected to reach
a similar (though a slightly lower) figure
for 2023. Client numbers, however, have
fallen to around 35,000 – quite a distance from its peak a few
years back when that figure was c15,000 higher.
So what is that telling us? It’s difficult to know. It could be
telling us that the popularity of Invoice Finance is on the
wane. Given that the turnover values are still high, however,
it may also be suggesting that it’s a smaller number of larger
businesses that find it most useful. That would be a simple
conclusion, were it not for the fact that within the client
numbers, business volumes within the £0 - £1m turnover
bracket have increased.
Data can only reveal so much. The volumes and values captured
by UK Finance do not represent the entire market – only its
40 or so asset-based finance members. Some of the smaller
providers’ data, for example, is not included. (Some may see
the annual cost of membership as a barrier to membership.)
Most if not all the data from a growing number of spot-invoice
funders will similarly be discounted.
Clients that are not clearly defined as ‘pure play’ IF clients
may also not be included, in cases where large deals may be
being struck, and have a receivables element to them, but
would not be counted in ‘true’ IF performance. If the fall in
client numbers is taken at face value, and the popularity of
IF is in decline, then why might that be so?
COVID hangover
Certainly, there is a hangover from COVID; many businesses
that may have previously benefited from IF had access to other
forms of cheaper borrowing, and the Government was handing
it out with alacrity. There is also a current disinclination for
business to borrow; this is something that is not unique to IF
but is impacting all areas of commercial lending.
The challenge may also be, in part, of the industry’s own
making. Invoice Finance should not be fundamentally difficult
to understand. If a company is required to do business on
credit terms, then it helps them bridge the gap between the
work done and payment received. It is that simple.
For some reason, however, it is perceived as being complicated,
and seen as placing considerable responsibility on the
part of the borrower. That’s not surprising given that its
model has always been focused on managing and reducing
risk, requiring proper security and collateral. It is more
relationship driven, rather than a one-off interaction, and this
scares some businesses away. Fintechs and other challenger
funders, however, have seemed to make access to cash easier
to understand and the process more straightforward, even
though the discipline that Invoice Finance requires of the
borrower helps more cash to become unlocked, which has to
be a good thing all round.
Brave | Curious | Resilient / www.cicm.com / March 2024 / PAGE 14