Brexit Pushes Invoice Finance Levels to Record Highs…
There have already been many unexpected twists and turns in the economy that have been attributed to Brexit, but one very few experts foresaw was the marked increase in invoice finance. 2017 was a record year for the invoice finance sector, with figures released by UK Finance showing the industry now stands at over £22bn, which is the highest level ever recorded.
This 13 percent year-on-year jump in invoice finance has been driven by the strength of the export sector, with the value of sales through export invoice discounting facilities up by a third over the first nine months of the year, with export factoring experiencing an 11 percent rise.
Why have more businesses turned to invoice finance?
There are a number of reasons why businesses are choosing to use invoice finance to reduce the uncertainty surrounding Brexit. One of those is the fluctuating exchange rate. Although speculators are currently bullish about the prospects of the GBP, the currency could still depreciate if talks break down in the future. Rather than waiting to see what the pound will do, many exporters are choosing to use invoice finance to turn their invoices into cash immediately. That gives them more certainty about their cash-flow and makes it easier to forecast their position in the future.
Many businesses also fear that Brexit will increase their unit and labour costs and make external finance more expensive. Real estate, wholesale, retail and professional service sectors also fear lower sales growth and price rises ahead. Some companies are choosing to use invoice finance to fund the higher cost of finance in the future and offset the lower cash receipts from reduced sales.
The increased popularity of alternative lending platforms
The uncertainty surrounding Brexit is not the only reason alternative lending streams such as invoice finance have grown in popularity over the last couple of years. One of the primary reasons for the surge is the reluctance of mainstream lenders such as high street banks to lend to businesses following the financial crisis.
The increased awareness of the availability of alternative lending streams is currently reshaping the small business lending landscape and is leading to greater choice, better service and lower lending costs. In fact, between 2015 and 2020, the accountancy giant KPMG expects big banks to lose 10 percent of their commercial lending market share to innovative and more specialised fintech service providers.
More progress expected in 2018
Although there is already a clear trend of SMEs turning away from the banks in favour of invoice finance providers, there’s still much more room for growth in 2018. The biggest driver behind the growth of alternative finance streams is awareness. Many business owners still do not know that there are viable funding options other than company overdrafts, credit cards and loans.
However, given the increasing problem of late payments in the UK, many businesses are exploring the different ways they can mitigate the impact on their cash-flow. Invoice finance is one of the solutions they are often presented with, and while this used to be thought of as an expensive solution, the increasing number of providers in recent years has greatly improved its affordability.
“More funding could and should be provided”
Commenting on the findings, Mike Smith of Business Expert Invoice Finance, said: “Despite the encouraging numbers, more funding still needs to be provided through invoice finance to keep smaller businesses on the right track. It’s about time the so-called ‘ban on assignment clauses’ which large firms sometimes impose on invoices from smaller suppliers were outlawed, as this restricts the number of finance options available.”
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