Finance · 19 December 2017

Invoice finance and asset-based lending to businesses reach record levels

Invoices and bills with paid stamp
Invoice financing provides loans against a firm’s accounts receivable

The invoice finance and asset-based lending industry has provided more finance to British businesses in 2017 than ever before, according to UK Finance data.

The latest lending figures from the finance industry’s trade body show that levels of invoice finance and asset-based lending to businesses of all sizes have increased 13 per cent, compared with this time a year ago.

The growth in popularity of invoice finance and asset-based lending has come as business owners have sought newer and more efficient ways of accessing funds to grow their firms.

Both forms of finance provide structured working capital loans against a business’s assets, however, where invoice financing provides loans against a company’s accounts receivable, asset-based lending may also provide loans against a firm’s inventory, equipment or owned property.

Read more: Asset-based finance booms as nervous businesses seek “cash cushions”

At the end of the third quarter of 2017, UK Finance estimated that the total amount of invoice finance and asset-based lending provided to UK businesses had reached over £22bn – the highest amount in advances the industry has seen.

For the first three quarters of the year, total sales for businesses supported by invoice finance and asset-based lending went up four per cent, amounting to around £214bn.

According to the data, forms of invoice finance and asset-based lending have performed particularly well for UK exporters in 2017.

Sales from businesses through export invoice discounting facilities – those which lend against capital tied up in a company’s outstanding export sales invoices – have increased 33 per cent in total this year. Meanwhile, export factoring – more specialised export facilities – went up 11 per cent.

Welcoming the growth in the sector, UK Finance’s director for invoice finance and asset-based lending, Matthew Davies, claimed that the latest data proved that business owners were beginning to understand these types of borrowing better, whilst seeing their benefits for business growth.

He added: “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.

“2016 was itself a record year for the invoice finance and asset-based lending sector, with the industry supporting client turnover of £280bn for the year. But, more funding could and should be provided through invoice finance.

“To unlock this, the government should bring forward long-awaited legislation to give more smaller firms, in particular, access to much-needed capital. So-called ‘ban on assignment’ clauses are sometimes imposed by larger businesses on their smaller suppliers, and can restrict the finance options available to those supplier businesses.”

UK Finance expects that in early 2018, the government will bring forward its planned introduction of forward its planned revised regulations around Business Contract Terms (Assignment of Receivables) to open the sector up to more smaller companies.

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Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.