Invoice Finance Update

One of the few positives to emerge from the recession that followed the economic crash was the renewed innovation in business funding. Up until about 10 years ago, if you wanted to borrow cash to grow your business you would have probably gone straight to the bank. To be successful in securing a loan, you would have to put together a sound business plan backed up by company assets or personal guarantees.

All that changed when the banks closed their doors to small businesses following the financial crash. In their place came a stream of alternative funding sources, including the invoice finance sector. Since then the alternative finance industry has gone from strength to strength, offering small businesses better value and more choice than they have ever had before.

Exceptional growth

Now, in 2017, the invoice finance industry is still an exciting and innovative industry to work in. With a Brexit influenced economy and the spectre of Trump hanging ominously over us all, there’s no doubt the industry will continue to evolve over the coming years, and almost certainly, it will continue to grow.

The combined market activity of the UK alternative finance industry is now worth £3.2billion, representing an 84 percent increase in growth compared to the £1.74 billion of 2014. The value of the invoice finance market alone exceeded £2billion for the first time this year and there’s no sign of this growth slowing anytime soon.

The new breed of invoice finance providers

In the last couple of years the invoice finance market has changed markedly, and like so many industries, it is being transformed by technology. The result is that many of the entrenched market leaders are losing ground and being replaced by new providers that offer greater levels of transparency and control. Certainly, the amount of choice has exploded. There are now 40+ dedicated invoice finance providers compared to just 10-15 a few years ago.  

So, what positive changes have been made?

  • Lower borrowing costs

The reputation and size of some providers, along with the lack of competition in the industry, meant some invoice finance providers could offer poor terms to their clients. However, now all that has changed. Administration fees can be as low as 0.25 percent, interest rates are dropping and ‘disbursements’ have been reduced or removed altogether.

  • Better facility incentives

The rising competition in the industry has led to more incentives and increased flexibility. Notice periods and exit fees have been reduced; lock-in periods have been removed; borrowers can choose the invoices they want to sell, and there’s no longer the requirement to fund the entire sales.  

  • More sector-specific providers

Another notable trend is the increase in the number of invoice finance providers with expertise in particular sectors. Being able to understand their clients’ businesses at a much deeper level has helped to attract customers and improve service levels.

  • Improvements in hard to fund sectors

Some businesses in industries such as construction, transport and recruitment had found it hard to access invoice finance due to the unique challenges they face, but now the increase in funding options means all that has changed.

  • Increased access for start-ups

Funders are now recognising that the traditional criteria of 2 years of filed accounts and a strong net income position are preventing them from capitalising on the opportunities that exist to fund newer businesses in the UK marketplace.  

Clearly, much has changed in the last few years, which makes now a good time to review your current agreements and compare the UK’s invoice finance providers to find the best deal.      

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