The invoice finance and asset-based lending sector is providing more finance to UK businesses than ever before, but experts warn that Brexit could quickly put a brake on the upward curve.
2017 was a good year for the invoice finance sector. According to figures released by UK Finance, the third quarter of 2017 saw a 13% year-on-year jump in invoice finance in the UK and now stands at just over £22bn, the highest ever recorded.
UK Finance notes that the “exporting picture is particularly strong”, with sales from clients through export invoice discounting facilities up 33% in the first nine months of the year, and export factoring up 11%.
This growth has been documented by a number of players in the market. Tungsten Network Finance, for one, a global electronic invoicing firm, has announced it nearly doubled total originated invoice outstandings to a record £54.5mn, an 89% increase from the previous reported peak of £28.8mn in October 2017. On a daily average basis, invoice outstandings were £33.8mn in December, up from £22.4mn in October and £14mn in April.
“There is increasing understanding amongst businesses of all sizes of how invoice finance and asset-based lending can support them as they grow, and it is particularly encouraging that a substantial proportion of the sustained increases in lending we’ve seen in recent months is helping boost UK exports,” says Matthew Davies, director of invoice finance and asset-based lending at UK Finance, commenting on the new figures.
Despite the encouraging numbers, however, he says that “more funding could and should be provided through invoice finance” and calls on the UK government to bring forward “long-awaited legislation” to give more smaller firms in particular access to much-needed capital. He refers to so-called ‘ban on assignment’ clauses, which are sometimes imposed by larger businesses on their smaller suppliers and which can restrict the finance options available to them. To address this issue, the UK government is expected to bring forward revised business contract terms regulations in 2018.
The call for political attention is echoed elsewhere in the industry. A further analysis from tech services company Equiniti, for example, shows that the confidence of businesses to borrow is closely tied with the country’s economic fluctuations, leading the firm to warn that the eventual outcome of the Brexit negotiations will have a direct effect on invoice finance levels.
The analysis finds that since 2014, declines in GDP growth have caused a knock-on effect on invoice borrowing.
“Comparing the growth in invoice finance with that of the country’s value is a clear indicator that small to medium businesses will continue to strive for growth as long as GDP continues on an upward curve,” says Aaron Hughes, managing director at Equiniti Riskfactor. “It raises the worry that, should the UK suffer as a result of Brexit or any other macroeconomic downturn, SMEs will batten down the hatches, stop borrowing and run into difficulty as a result.”
In Q1 2016, when GDP grew by only 0.16%, the balance of invoice finance consequently decreased by over 3%. In contrast, in Q4 2016, a 57% growth in GDP corresponded with a rise in invoice finance of 9%, the highest quarterly rise on record, according to Equiniti.