UK businesses secure record amount through invoice finance

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 GBP 16bn in 2011-2012.

More than that, according to The ABFA (Asset Based Finance Association) 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 GBP 100m), up from GBP 5.8bn in funding last year to GBP 6.9bn 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.

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.

The 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.

Additionally, around 80 % of asset based finance is invoice finance, while the other 20 % 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.

The total number of business securing asset based finance has risen by 1% over the last year, from 43,133 to 43,913, a slower rate than the growth in the amount borrowed, indicating that UK businesses are securing larger amounts than last year.

The amount secured through invoice finance breaks the GBP 20bn barrier for the first time – up 5% in the last year.