Credit Management April 2024 issue

INVOICE FINANCE
PICTURE
IMPERFECT
What’s really going on in the world of Invoice Finance?
BY SEAN FEAST FCICM
FOLLOWING on from the article in the
March issue (Wax and Wane) on the state
of Invoice Finance, Credit Management
sought the views of an Invoice Finance
provider and a commercial broker for a
view ‘from the other side’.
Ant Persse FCICM, CEO of Optimum Finance, says that
his first concern centres on the data: “The article questions
the data that comes from UK Finance, and I would agree.
Many funders, especially the smaller independents, do not
report to UK Finance, largely because of the perceived cost
versus benefit of joining. This means that the data being
reported cannot be wholly accurate and that is unhelpful.
“I also don’t think that the 50,000+ IF provider debentures
quoted in the article will include IF that is provided from
multi-product providers whose debentures/funder names
do not clearly differentiate Invoice Finance from their other
funding solutions. This suggests that the number could be
higher. However, I also agree that many debentures remain
unsatisfied despite facilities with funders expiring, then
reducing this number. Ultimately this implies that the data
is neither straightforward nor accurate.”
Ant says that if UK Finance captured all the data from
all funders, it would present a clearer and more accurate
picture: “It would also tell us which businesses benefit
from the product and more importantly who don’t so
that funders and introducers can seek to target enhanced
awareness in these areas.”
Unrepresentative view
Leanne Dawson, Founding Director of Pathfinder Invoice
Finance, agrees that taking the view of only 40 lenders is
not a true representation of the industry: “It would be more
useful to see the full sector reporting, whether part of the
UK Finance or not,” she says.
She wonders whether UK Finance could look at providing
an ‘entry’ level membership to allow more lenders to access
the panel and to provide the information required for a
full sector analysis: “Lenders should want to be part of UK
Finance and incorporate the training and awareness of
the body to new entrants to IF,” she adds. “As a consensus,
individuals (not organisations) working within Invoice
Finance are not even aware that UK Finance exists and that
has to be a concern.”
In terms of the popularity of IF, Leanne cites, for
comparison, data provided by the NACFB – the National
Association of Commercial Finance Brokers. Only three
percent of the £38bn of lending attributed to brokers
involved Invoice Finance: “On that basis, the picture looks
bleak, but again we’re not really seeing an accurate picture
of what’s happening.
“That said,” Leanne continues, “we cannot ignore that
the use of IF decreased during COVID, as did the average
utilisation from existing clients that remained in IF. This
was due to the ‘cheap’ money made available through
various Government loans. BBL had rates of 2.9 percent,
and while CBILS/ RLS rates varied the rates were so low
that businesses could save funds through paying off their
Invoice Finance.”
Leanne expects this scenario will soon reverse: “Businesses
are continuing to struggle with cashflow due to COVID,
Brexit, inflation and the cost of war,” she says. “Lenders
anticipate that when the CBILS funds are spent, clients
will revert to Invoice Finance.”
Ease of understanding
In the original article, the author highlighted the need to
make Invoice Finance easier to understand. This resonates
with both Ant and Leanne: “I regularly speak to businesses
who do not understand what Invoice Finance is,” Ant says.
“Yet in the simplest of terms, it is where an invoice financier
buys your unpaid invoices, giving you quick access to cash
for work you've already done, therefore, unlocking cash that
is trapped in your unpaid invoices. It would be interesting
to see if this simple description resonated with businesses
and made it easier to understand.”
Ant also says that the author is right that IF providers
don’t always help themselves: “They have complex ways of
describing things that the layman would not understand,
and to have multiple ways (often all equally as unclear) to
describe the same thing makes it even more complicated,”
he says.
Brave | Curious | Resilient / www.cicm.com / April 2024 / PAGE 16