Credit Management April 2024 issue

INVOICE FINANCE
“Perhaps UK Finance should better support / work with the
entire industry with terminology standards and to test with
businesses to make sure that they are clear?”
Leanne agrees, and actually makes a point of adjusting the
language on the term sheet to make it easier to understand:
“At Pathfinder we alter the terminology on the term sheets
and make it consistent for the client to understand. We
also show the percentage in pound value for the true costs.
Speaking with business owners, the product is confusing,
it is impossible to compare like for like – as the fees differ
from each lender.”
As part of the training internally, Leanne’s team look at
the terms and produce a glossary so that new starters can
understand that an IP is the same as a PP, and a funding line
is the same as a review limit: “Then we get to the charges!”
she says. “Service charge, service charge minimums,
discount charge, trust account fees, refactoring fees, renewal
fee, credit note fee, TT charge, arrangement fee, bad debt
protection fee, RLS top up fee if incorporating into Invoice
Finance agreement. These can also be named differently for
each lender. How is a business owner supposed to navigate
this without assistance?
“Once the client is live, depending on how much detail
the Invoice Finance lender has gone into, clients are often
upset because they were unaware of the funding limits,
meaning that they have caps, concentration limits that
have not been set correctly, and debt turn targets that
are in place that make it easy for a client to get lost in the
detail and feel that there are more restrictions than benefits.
“The product does not need to be complicated,” she
continues, “if time is taken to understand the business and
the correct lender and parameters set. If not, the product
will feel complicated and at worst restrictive.”
Unlocking the potential
Some don’t hold with the idea that many hundreds of
thousands of businesses could benefit from IF. Ant feels,
however, that again, the true value would only be known if
there was greater awareness of the product: “Invoice Finance
can certainly unlock a vast amount of cash that is trapped
in unpaid invoices and have a significant impact on the
economy,” he says. “However, it continues to carry limited
awareness within the business community, with us often
having to describe what it is and how it works.
Leanne takes a similar view: “I would agree that many more
B2B businesses would benefit from utilising IF. There is an
education piece required around Invoice Finance to show
business owners how it can aid growth rather than solely
being used when cashflow is tight. An IF facility will always
work better in a growing business than a business in decline
due to the nature of advancing against invoices.”
Invoice Finance works for B2B businesses that deliver goods
or services to their customers on trade terms. The Business
intelligence Group suggests that 40 percent of businesses
trade is wholly B2B and a further 42 percent operate both
in the B2B and B2C space. The same research suggests that
over £1.7tr of the UK’s turnover is solely B2B. If we assume
that the average trade terms are 58 days as quoted in the
Department for Business and Trade’s Payment and cash
flow review report (Nov 2023), if all businesses that solely
traded in B2B used Invoice Finance this could unlock over
£200bn of cash to the economy: “This is around 10 times
what UK Finance are suggesting has been advanced by
Invoice Finance today,” Ant adds.
Innovation opportunity
In terms of technology, both agree that innovation is an
opportunity and not a threat: “The advances of technology
will be a benefit to the industry,” Leanne says, “especially in
accelerating the decision to fund which can now be in hours
rather than days. Artificial Intelligence is also paving the
way to assist in the sales process and aiding the sales team
to understand the company structure quickly, although
I would state that the ‘human touch’ is aways needed to
structure a facility appropriately.”
Leanne thinks that one of the biggest challenges facing the
IF industry is future talent: “The average age of Invoice
Finance employees in client management and sales roles is
increasing,” she says, “and we need new talent to assist with
new ideas.”
Ant agrees: “We don’t see a huge number of people/young
blood actively looking to join our sector and this means that
bringing in new ideas and fresh thinking can be challenging
and result in our space lacking in terms of innovation.
However, some funders including ourselves are trying to
break the mould by opening apprenticeship schemes in
the sector and while this is not the total answer, it is most
certainly a step in the right direction.”
“For many businesses, they will see the assets that sit on their
balance sheet as plant and machinery, vehicles, property
and fixtures and fittings, all of which can be leveraged to
access cash. However, they often don’t realise that one of
the biggest assets that sit on their balance sheets is their
receivables / trade debtors and they could access cash against
these too. UK Finance, British Business Bank and Trade
bodies such as the FSB and British Chambers of Commerce
should support invoice financiers with increasing awareness
of this product to the betterment of all.”
Brave | Curious | Resilient / www.cicm.com / April 2024 / PAGE 18