The use of invoice financing and other asset-based lending mechanisms has been increasing for some time among companies across the UK but 2017 could see a strikingly sharp rise in the scale of the market and the prevalence of the associated solutions.
Alternative lending platforms such as invoice financing have become particularly popular among SMEs in recent years for a variety of reasons, not the least of which is the relative reluctance of traditional banking institutions to lend to businesses since the financial crisis of the last decade.
This tendency along with the emergence of innovative and highly-specialised fintech service providers is currently reshaping the small business lending and financing landscape. So much so in fact that the consultancy giant KPMG estimates that big banks will lose 10 per cent of their business lending market share between 2015 and 2020.
Meanwhile, the Asset Based Finance Association (ABFA) reported in March 2017 that activity in the asset-based finance market in the UK increased in scale by 13 per cent to reach a value of £22.2 billion over the course of 2016. Around 80 per cent of that activity is understood to be accounted for by invoice financing, including selective invoice finance, which is a notably popular aspect of the emergent market.
The ABFA has cited uncertainty resulting from Britain’s decision to exit the European Union in 2016 as a driver of invoice finance activity among UK companies. Its view is that a growing number and variety of businesses feel that they need more ready access to cash now than they have done in the past in light of their various Brexit-related uncertainties.
Asset-based lending and particularly invoice financing is apparently being seen as an increasingly important means of securing a “cash cushion” among UK businesses.
The prospect of increased awareness
While there is clearly a trend towards growth in the scale of the invoice finance market in the UK, there remains very considerable scope still for its further expansion and good reason to think that 2017 could be a hugely important year for its progress.
A key issue and potentially the most significant driver of growth in the use of invoice finance is simply that of awareness. After all, there is certainly no shortage of potential demand for such services, with research from the Lloyds Banking Group suggesting that the UK’s SMEs were owed some £586 billion in relation to unpaid invoices in October 2016.
Furthermore, that same Lloyds research found that the scale of money owed to Britain’s SMEs in relation to unpaid invoices had increased by 8 per cent between January and October of 2016.
Little wonder then perhaps that more and more SMEs are learning about and then turning to invoice finance solutions and fintech-enabled alternative finance platforms to help them manage their money, balance their books and plan for the future with greater confidence.