The Asset Based Finance Association (ABFA) has reported that the total amount of lending UK businesses secured through invoice finance has passed the £20.3 billion barrier, up 5% from £19.3 billion last year.
The amount of Invoice Finance and Asset Based Lending secured by UK businesses has risen by over a quarter (27%) over the last five years, up from £16 billion in 2011/12.
ABFA adds that the record high has been primarily driven by an 18% increase in the amount drawn down by the UK’s largest businesses (with a turnover above £100m), up from £5.8billion in funding last year to £6.9illion this year.
The usage of Invoice Finance has become increasingly mainstream especially as big businesses seek to diversify their funding sources away from and to prevent over reliance on traditional loans. Continued concerns over a Brexit-related credit crunch may increase the need to diversify credit sources still further. Invoice Finance allows businesses to raise funds secured against the value of the invoices they issue to customers.
ABFA says that as large businesses have so much capital tied-up in invoices issued to a wide range of customers they are ideal customers for invoice finance providers. ABFA adds that since the credit crunch many UK businesses suffered from delays to the payment of the invoices they sent to customers and used invoice finance as a means of unlocking tied-up capital to fund growth. Since the Brexit referendum, there have been concerns that payment problems may worsen if businesses try to build up their cash cushion rather than pay suppliers.
ABFA explains that around 80 per cent of Asset Based Finance is Invoice Finance, while the other 20 per cent represents the fast-growing area of Asset Based Lending, in which in addition to debts, businesses can raise funding secured against a range of other assets they own, including inventory, property, and machinery.
Jeff Longhurst, Chief Executive of ABFA, said: “There’s increased appetite for Asset Based Finance amongst the UK’s largest businesses. More of these large companies now view it as one of the primary sources of funding, which has pushed the total amount of funds advanced past the £20bn barrier.” “It continues to be one of the most important sources of working capital for growth and acquisition.”
“Invoice Finance and Asset Based Lending are now an established part of the commercial finance market and there is increased appetite from larger UK businesses to secure funding through this route. Whilst the availability of finance from traditional sources was relatively slow to recover from the credit crunch, the asset based finance market opened its doors to businesses and there remains significant capacity to provide more finance to more UK businesses.”