Credit Management March 2024

INVOICE FINANCE
One of the reasons it is seen as complicated, however, is because there
is no consistency in the language that IF providers use. Different
providers use different ways to describe the same things. Sometimes
a funder even uses different terminology within their own business:
advance rate, pre-payment initial percentage and initial payment, for
example, are three ways to describe the same thing!
Notwithstanding these factors. UK Finance remains confident that the
popularity of Invoice Finance will return, especially as the economy
recovers, and acknowledges there is a huge appetite from its IF members
to lend. While it may be in something of a holding pattern, in the
context of other forms of commercial finance and lending products,
it remains relatively resilient.
It may be, also, that the figures from UK Finance regarding client
numbers are an underestimate of what’s really going on. A recent
review of debentures registered by Invoice Finance providers suggests
the figure is closer to 50,000 rather than 35,000, but it’s not a given, and
the fact that some charges are not satisfied and therefore incorrectly
recognised adds a complication to clarifying a somewhat opaque picture.
Some don’t hold with the idea that many hundreds of thousands of
businesses could benefit from IF. It requires a business to be B2B, which
instantly rules out a considerable swathe of SMEs, and some businesses
(as stated previously) are simply not in the market to borrow. That
said, IF isn’t borrowing and it’s more than ‘just’ funding; it provides
a credit management service. If there are two million actual trading
businesses and 44 percent of them are B2B (according to data from
the Business Intelligence Group), then that still equates to 220,000
potential beneficiaries which is a long way short of the 35,000 or so
current users.
Last resort
Is the industry concerned that IF is still seen as something of funding
of the last resort? On the one hand, this can be seen as a negative.
Looked at differently, however, it shows that many different types of
funding are available to support businesses at different stages of their
own economic cycles and that has to be a good thing.
When it’s considered that IF and Asset-based lending products support
UK businesses which when combined represent in the region of 12
percent of UK Gross Domestic Product, its place in the commercial
lending spectrum is warranting of higher respect. The fact that the
popularity of IF is growing within the mid-market, also, would suggest
it is anything but ‘last resort’ but more accurately ‘early choice’.
So what about the future?
The receivables finance sector is far from black and white. New
entrants are always appearing, such as those who fund credit card
receivables, for example. IF providers may have to evolve their existing
models; how companies pay and get paid is changing and the new
payment architecture could transform the Invoice Finance industry.
Artificial Intelligence, Open Banking and other digital tools will all
play their part.
And there is another challenge lurking around the corner: e-invoicing.
To some it will be an opportunity; to others, a threat. In the European
Union it will be mandatory; in the UK, it is more of a murky pond
and the industry will need to be on the front foot or else it will be
the large accountancy software providers who will be calling the tune
and defining the future competitive landscape.
Is the industry
concerned that
IF is still seen
as something of
funding of the
last resort?
Brave | Curious | Resilient / www.cicm.com / March 2024 / PAGE 16