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UK asset finance market reaches record level in 2018

The UK asset finance market reached a record level during 2018 with new business totalling almost £33 billion.

The rise of 3% compared to 2017 represents the eighth consecutive year of growth for the industry, according to the Finance and Leasing Association, and comes despite the disruption of ongoing Brexit negotiations.

Asset finance new business (primarily leasing and hire purchase) grew in December by 7% compared with the same month in 2017, and by 5% during Q4 2018 as a whole.

The plant and machinery finance and commercial vehicle finance sectors reported new business up in December by 29% and 18% respectively, compared with 2017, while new finance for IT equipment was up by 16% over the same period.

Direct finance was the main form of funding approved during the year, accounting for £15.3 billion, a rise of 2% year-on-year, while sales finance was down 1% to £9.1 billion. Broker-introduced finance grew strongly, rising 12% year-on-year to £6 billion.

Lease/hire purchase remains the most popular form of funding, accounting for more than £18 billion of finance last year, a rise of 8% compared to 2017.

Geraldine Kilkelly, head of research and chief economist at the FLA, said: “The temporary increase in the Annual Investment Allowance for plant and machinery from January 1, 2019 announced in the last Budget should support further growth in this sector over the next few months.”

During 2018, FLA members provided a total of £137 billion of new finance to UK businesses and households. FLA members financed around third of UK investment in machinery, equipment and purchased software in the UK in 2018.

UK asset finance market 2018

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Total FLA asset finance (£m)  2,788 +7 8,236 +5 32,571 +3
Total excluding high value (£m) 2,501 +8 7,656 +4 30,472 +3
By asset:
Plant and machinery finance (£m) 660 +29 1,786 +18 6,849 +5
Commercial vehicle finance (£m) 673 +18 2,218 +14 7,984 +7
IT equipment finance (£m) 342 +16 674 -9 2,714 +15
Business equipment finance (£m) 247 +11 735 +16 2,659 +4
Car finance (£m) 617 +3 2,040 -7 8,893 -5
Aircraft, ships and rolling stock finance (£m) 30 -17 123 +105 312 -43
By channel:
Direct finance (£m) 1,268 +13 3,833 +5 15,259 +2
Broker-introduced finance (£m) 502 +8 1,629 +12 6,090 +12
Sales finance (£m) 731 -1 2,195 -5 9,123 -1
By product:
Finance leasing (£m) 381 -4 1,134 +11 4,094 +8
Operating leasing (£m) 511 0 1,531 -6 5,981 -11
Lease/Hire purchase (£m) 1,532 +28 4,658 +13 18,158 +8
Other finance (£m) 249 -3 637 -5 3,052 -3

Source: Asset Finance International

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Asset Finance Guide for Suppliers: Make Life Easier for You & Your Customers with the Right Asset Finance Solution

Asset finance is a vital finance tool for businesses that can’t afford to invest upfront in essential equipment and machinery. If you are a supplier, offering the right asset finance solution can help you onboard a significantly higher number of customers.

Keeping aside all the business and marketing jargon like ‘cutting-edge’ and ‘state-of-the-art’, it shouldn’t be too hard to see why businesses are constantly in a need to buy or lease newer, better, more efficient equipment, machinery and even software.

This need typically stems from two reasons:

  1. To stay relevant. When all your competitors are moving ahead of the curve, you are forced to take desperate measures to catch up. This isn’t an ideal way to look at things from the business perspective, but it is the cold, harsh reality. We can go so far as to say that many businesses find themselves going for newer assets that they wouldn’t really need if it weren’t for the competition.
  2. To add to the top line. In other cases, buying or leasing assets is a genuine need to maintain, sustain and improve operations. Businesses estimate that the costs of onboarding an asset will compensate themselves through better performance, productivity and/or efficiency, adding more strength to their top line.

Regardless of the reasons, the only thing suppliers need to know and understand that there is and will always be a steady demand for assets (so long as your business is on the right side of technology, trends and market forces). Despite this factor being in their favour, many suppliers and vendors end up performing poorly – thanks in no small part to their inability to look after customers’ needs.

Asset finance solves this problem.

What Is Asset Finance?

Every business knows this very well – it’s much easier to finance products and services than getting cash loans.

This applies even more strongly to small partnerships and sole traders. Getting a personal loan from a high-street lender and diverting the funds towards buying or leasing an equipment they sorely need is a tough task. It not only puts their personal credit on the line, it also means that they end up closing doors on their business should the need to borrow more arise in future.

So, quite predictably, it’s very common to see businesses that are stuck between the proverbial rock and a hard place – the need to have an asset on board and the inability to pay for it.

As a supplier or vendor, this doesn’t bode well for you. You can’t just turn down prospects after prospects just because there’s no workable financing solution to make the transaction happen.

“Even though it’s true that SME loan acceptance rates are promising, businesses will take every opportunity to spread their purchases without touching the cashflow. If you offer your customers a customised asset finance solution through a reliable, market-leading broker like Commercial Finance Network, you can bring down the biggest conversion and sales barrier for your business.”

How Does Asset Finance Help Your Customers?

Before understanding how asset finance helps suppliers and vendors, let’s quickly take a look at why it is so popular among businesses (your customers).

It’s Easy.

It’s much easier for businesses to secure asset finance than getting a business loan. Asset finance is usually tied to the asset being bought or leased, and, in a way, is secured. This allows lenders to be more lenient while assessing asset finance applications.

It’s Flexible.

Asset finance is among the most flexible commercial finance solutions out there. Depending upon the type of asset finance chosen, the borrower can choose the interest-only model or the flexible monthly instalment model for repayment. While leasing the asset, there are usually little to no upfront costs involved for the lessee.

Commercial Finance Network offers some of the most flexible asset finance partnerships to suppliers and vendors. Based on the nature of the asset and the requirements of the borrower, we may be able to extend partial or full finance, customised repayment schedules (including a possibility to introduce repayment holidays) and some of the lowest interest rates going around.

It Makes More Sense.

By not paying the cost of the equipment or machinery (or any other asset, for that matter), the borrower can make sure that their cashflow isn’t hurt. They get to enjoy the benefits of having the asset on board without sacrificing their working capital – a win-win on most counts.

It’s Cheaper.

Buying or leasing assets, in most cases, is tax deductible for businesses. Through Annual Investment Allowance (AIA), businesses can claim tax relief to the tune of qualifying asset expenditure, adding a huge incentive for asset acquisition.

The good news is, the HMRC has temporarily increased the AIA limit from £200,000 to £1,000,000 for two accounting years (starting 01/01/2019).

Find out here if your customers can claim AIA for the assets on your inventory.

How Does Asset Finance Help You, As a Supplier/Vendor?

Being a supplier or a vendor means that you get to work with a variety of businesses. Let’s just assume that you turn down a significant fraction of leads because there is no feasible financing solution available for the customer to finalise the agreement.

In that case, the easiest way to calculate the impact of an asset finance partnership on your bottom line is this:

Let’s say you generate a net profit of £5,000 per sale and £900 per lease.

You generate 2,000 leads per month, with a conversion rate of 1% (in sales) and 1% (in leases). That means you generate profits to the tune of £118,000 per month. If you turn down 0.1% of leads just because the customer isn’t able to secure a good asset finance package, that adds up to £11,800 per month in lost profits!

By forming a no-obligations partnership with a responsible, industry-leading whole of market broker like Commercial Finance Network, you can boost your sales significantly, without incurring any charges. To know more or to request a call back from our asset finance experts, please get in touch with us.

Here are other reasons for suppliers and vendors to offer asset finance to their customers:

It Frees Up Your Money

If you are a supplier, here’s what a typical cash cycle may look like for you:

  1. You purchase an asset from the vendor (day 0).
  2. You pay the vendor within two weeks (money out by day 30, you’re cashflow negative with an asset on your books).
  3. The customer agrees to purchase the asset from you on day 40. The asset is immediately moved off your books.
  4. You’ll still be cashflow negative for the next 30 days.
  5. On day 70, you finally receive the payment for the asset. You book profits and you’re cashflow positive.

Alternative, if your customer had an asset finance solution to facilitate the transaction, this is what happens:

  1. You purchase an asset from the vendor (day 0).
  2. You pay the vendor within two weeks (money out by day 30, you’re cashflow negative with an asset on your books).
  3. The customer agrees to purchase the asset from you on day 40. The asset is immediately moved off your books.
  4. The transaction is complete within 2-5 days.
  5. You book the profits no later than day 45. You’re cashflow-positive.

So, essentially, asset finance significantly improves your cashflow cycle in your favour (from 70 days to 45 days, in this case).

It Removes the Most Common Conversion Barrier.

Investing heavily in an asset is never an easy decision for your customers – especially if they are small businesses.

You can be sure that they are looking around for better deals even when the negotiations are on with you. In such cases, if they can get an affordable asset finance quote, it can be the decisive factor in your favour.

It Doesn’t Cost You Anything.

Forming an asset finance partnership with Commercial Finance Network means you will only be directing your customers to us. Your receivables will be fast-tracked directly to you, without you having to bear any extra costs.

Types of Asset Finance Your Customers Can Avail

  • Hire Purchase
  • Finance Lease
  • Operating Lease

Asset Finance Makes Life Easier for You and Your Customers

As a B2B, you’re going to have to take every measure to improve the conversion rates on all fronts. If you don’t close your customers, your competitors definitely will.

To know more about how Commercial Finance Network’s end-to-end asset finance services help your customers (and – in turn – you), do visit our asset finance page.

Help yourself by helping your customers. Contact us today to request a free asset finance partnership proposal!

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UK asset finance market remains on track for record year

Growth in asset finance new business (primarily leasing and hire purchase) for the UK remained stable towards the end of last year as the industry prepared to make a record year.

New figures released by the Finance & Leasing Association (FLA) for November show that plant and machinery finance and business equipment finance sectors grew 9% and 8% respectively compared to the same period last year.

Overall growth was slowed because finance demand for business cars and IT equipment fell by 6% and 32% over the same period.

Geraldine Kilkelly, head of research and chief economist at the FLA, said: “The asset finance market’s performance in November means the industry remains on track to report a record level of new business in 2018 as a whole.

“The percentage of UK investment in machinery, equipment and purchased software financed by FLA members reached 32.2% in the twelve months to September 2018, a nine-year high.”

Source: Asset Finance International

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Brokers overcome uncertain economy to guide UK asset finance market towards record levels

Asset finance new business (primarily leasing and hire purchase) grew by 9% in October, compared with the same month last year, pushing the market closer to an all-time record, according to new analysis.

Latest figures from the Finance & Leasing Association (FLA) show that the plant and machinery finance and business equipment finance sectors had particularly strong new business growth, rising 16% and 29% respectively, compared with October 2017.

New finance for commercial vehicles increased by 23% over the same period.

For the 12 months to the end of October, asset finance demand has grown 9% compared to the previous 12 month period, or 3% excluding high-value items.

Growth has come almost entirely from broker-introduced finance, which was up 22% in October compared to the same period last year and 12% over the past 12 months.

Geraldine Kilkelly, head of research and chief economist at the FLA, said: “The asset finance market made a strong start to the final quarter of 2018, with new finance for construction and agricultural equipment up in October by 27% and 19% respectively, compared with the same month in 2017.

“Asset finance new business in 2018 as a whole is likely to reach a record level, despite continued economic uncertainty weighing on business investment.”

Source: Asset Finance International

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UK invoice finance and asset-based lending grows despite economic uncertainty

The UK’s invoice finance and asset-based lending industry achieved modest growth, despite business uncertainty over the economy, new figures from UK Finance show.

The association’s invoice finance and asset-based lending update shows that advances stood at £22.6 billion at the end of Q3 2018, a rise of 2.4% compared to the same period last year.

Invoice finance accounted for 80% of lending by value, with most clients requiring factoring or invoice discounting.

The number of businesses using invoice finance and asset-based lending remained stable at around 40,400, of which 1,641 companies used asset-based lending in the quarter.

Overall, most clients were in the service, manufacturing or distribution sectors, with an average advance value of around £560,000.

For large businesses with a turnover of more than £100 million, support stood at £7.4 billion, with an average advance value of £17.2 million.

While there was growth overall, demand among small businesses with a turnover of less than £1 million fell.

The amount of finance provided to companies with turnover between £500,000 to £1 million was down 15% year-on-year to £436 million. Demand among companies with a turnover of less than £500,000 fell 5% to £664 million over the same period.

Stephen Pegge, managing director, commercial at UK Finance said: “Asset-based lending continues to show steady growth, driven mainly by advances to larger businesses.

“Support to small and medium-sized companies through invoice finance and asset-based lending is now comparable to total balances drawn on overdrafts.

“However, overall growth has remained modest in line with recent trends across SME lending, as businesses delay investment decisions until the broader economic picture becomes more certain.”

UK Finance is the collective voice for the banking and finance industry, representing more than 250 companies across the industry.

UK invoice finance and asset-based lending

Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018
Total advances (end quarter balances, all products) £m  22,039 22,135 21,633 21,408 22,567
Annual year-on-year growth 13% 5% 4% -2% 2%
Invoice finance – advances against debt £m 17,384 18,031 17,344 17,052 17,905
Invoice finance plus – advances against debt plus other assets £m 28 29 29 31 30
Total asset based lending £m 4.158 4.059 4.246 4.303 4,607
Against debt £m 2,860 2,693 2,822 2,850 3,127
Against stock £m 733 759 893 867 867
Against plant and machinery £m 391 450 378 426 442
Against property £m 96 85 86 94 102
Against other assets £m 78 72 67 66 69
Other commitment £m 19 16 14 22 25

Source: UK Finance

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Brexit uncertainty is causing business delays

Two thirds (67%) of brokers operating in the asset finance sector believed that Brexit is causing some businesses to delay investing in vehicles, plant and machinery, United Trust Bank (UTB) found.

The remaining 33% felt that Brexit was not affecting the companies they dealt with.

Figures from the Finance and Leasing Association (FLA) showed mixed results for different sectors with funding of plant and machinery in December 2017 just 1% higher than in December 2016.

Keith Sangwin, head of sales, asset finance, United Trust Bank, said: “We’ve had a busy year so far at United Trust Bank and for those companies which, regardless of Brexit, are confident in their business plans the market is extremely competitive, especially for strong credits.

“The rates we’re now able to offer customers with solid trading accounts and consistent credit histories are the lowest they’ve ever been.

“As a responsible lender we’re keeping a very close eye on the economy and taking account of all contributing factors, not just Brexit.

“However, UTB’s reputation for being a robust and dependable funder through all market conditions is as valid now as it ever was. The Bank continued to lend throughout the financial crisis and our book is very much open now.”

Commercial vehicle finance was down 14% and the big assets including ships, planes, rolling stock were down by 41%.

However, broker introduced business increased by 14% from 2016 to 2017 with brokers accounting for around a fifth of new leasing business by FLA members, still the fastest growing channel.

UTB’s research was carried out just before the announcement that a breakthrough had apparently been made by the UK and EU Brexit negotiators in agreeing the terms of a transitional period. It remains to be seen whether this will give businesses, and SMEs in particular, greater confidence.

Sangwin added: “The next 12 months are going to be very interesting. Politics and the economy are going to continue to dominate the news, but many businesses will not be directly affected by Brexit and will continue operating much as before, serving a UK or even more local customer base.

“United Trust Bank is one of those businesses. As a UK bank with UK customers we’re confident that we’re ready to face whatever the future may hold, and we’ll continue to support brokers and our SME customers, helping them to seize opportunities with quick and competitive funding.”

Source: Mortgage Introducer

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British Business Bank: positive growth for asset finance in 2017

Research from the British Business Bank Small Business Finance Marketsreport has shown that asset finance and leasing is competing well against other products in the small business market.

The value of SME asset finance deals (up 12%) and peer-to-peer business lending (up 51%) in 2017 both showed strong growth.

Data from the Finance and Leasing Association (FLA) suggests that new asset finance volumes with smaller businesses was over £18.6bn by the end of 2017, an increase of 12% on 2016.

Although net bank lending volumes remained positive (£0.7bn) in 2017, they were weaker than in both 2016 (£3bn) and 2015 (£2bn). Significant increases were seen in 2017 in both the value and number of SME equity deals (up 79% and 12% respectively).

The report finds a decline in smaller business confidence and low demand for external finance is becoming entrenched as their cash balances rise. Bank analysis finds that, over the last ten quarters, only 1.7% of smaller businesses sought new loans, a record low since the SME Finance Monitor began in 2011.

Less than half (43%) were confident they would get a loan if they applied, even though most new loan applications (72%) are approved. Moreover, 70% of SMEs are willing to forgo growth rather than borrow, continuing a trend identified in last year’s Small Business Finance Markets report.

Total invoice & asset-based lending advances to smaller businesses continue to rise and across all sizes of smaller businesses, the BBB found.

Data from the report has shown that the number of new loans among small firms has dropped to its lowest level since 2011.

Keith Morgan, British Business Bank chief executive, said: “A core objective of the British Business Bank is to encourage greater diversity of finance, so we welcome the growth in the uptake of equity finance and other alternatives to traditional lending.

“It can’t be overstated how important it is to build a more complete funding ladder for economically important high-growth businesses no matter where they are located. Scale-ups need more long-term patient capital throughout all stages of their development to be world-beating companies, and we look forward to using our new resources allocated at Autumn Budget to unlock more of this type of capital.”

Federation of Small Businesses (FSB) National Chairman Mike Cherry, said there were positives in the report for the wider SME lending sector, especially in London and the South East.

Cherry said: “But the fact that less than 2% of UK small firms sought new loans over the last couple of years is a real concern. We’re lagging behind the US when it comes to venture capital investment in businesses to the tune of millions. That has to change.

“Lots of small firms simply aren’t up to speed on all of their options. Increasing numbers are applying for asset-based loans and exploring the P2P route which is encouraging.

When it comes to equity finance, many small businesses are hesitant about selling a stake in their firm, even though it could be the right move for them. Small firms will often start their finance journey by speaking to the bank they’ve always dealt with, leading them down a more traditional debt route that won’t suit everyone.

“There’s also the issue of low awareness when it comes to government support. More than two-thirds of firms aren’t aware of the Enterprise Investment Scheme, for example.

“The £2.5bn handed to the BBB in the Autumn will be vital to helping tackle these issues. With Brexit edging ever closer, we’re set to lose hundreds of millions in small business support from EU funding streams. We need to see further guarantees from the Chancellor that small firms won’t lose out.”

Simon Goldie, head of asset finance at the FLA, said: “The 12% growth in asset finance new business that went to SMEs in 2017 demonstrates that leasing and hire purchase are vital sources of funding for these businesses.

“Improving the growth and productivity of smaller businesses is critical to the economy, so we welcome the BBB’s plan to stimulate demand for funding by introducing a new digital information hub in Spring 2018. The knowledge-gap in business funding has persisted for too long, and continues to hamper firms in their search for the right finance product.”

Source: Verdict

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UK asset finance market breaks records

Asset finance new business reached record levels in 2017 following growth of 5% during the year, according to the latest figures from the UK’s Finance & Leasing Association (FLA).

The sector achieved its seventh consecutive year of growth, with new business levels reaching almost £32 billion last year.

The plant and machinery finance and commercial vehicle finance sectors reported new business up in 2017 by 12% and 1% respectively, compared with 2016, while new finance for business equipment was up by 7% over the same period.

Geraldine Kilkelly, head of research and chief economist at the FLA, said: “The asset finance industry reported a record level of new business of almost £32 billion in 2017, despite challenging economic conditions and subdued business investment growth.

“The latest figures also reveal that asset finance is a vital source of funding for SMEs when investing in business equipment and machinery. Of the total asset finance new business in 2017, £18.6 billion went to SMEs – 12% higher than in 2016.”

During 2017, FLA members provided £128 billion of new finance to UK businesses and households, with £32 billion of finance provided to businesses and the public sector.

FLA members financed more than one-third of UK investment in machinery, equipment and purchased software in the UK last year.

UK asset finance market 2017

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Total FLA asset finance (£m) 2,632 +4 +4 7,861 31,769 +5
Total excluding high value (£m) 2,483 -1  -1 7,695 30,752 +6
By asset:
Plant and machinery finance (£m) 512 +1 1,515 +5 6,617 +12
Commercial vehicle finance (£m) 572 -14 1,934 -1 7,480 +1
IT equipment finance (£m) 293 +19 726 +14 2,285 +2
Business equipment finance (£m) 227 +6 624 +6 2,581 +7
Car finance (£m) 629 -2 243 +4 9,531 +5
Aircraft, ships and rolling stock finance (£m) 36 -41 60 -50 549 +20
By channel:
Direct finance (£m) 1,153  -7  3,746  0  15,477  +4
Broker-introduced finance (£m) 579 +24 1,620 +21 5,839  +14
Sales finance (£m) 752 -8 2,329 +4 9,436 +7
By product:
Finance leasing (£m) 403 +1 1,022 +5 3,809 +6
Operating leasing (£m) 511  -12 1,624 -4 6,755  0
Lease/Hire purchase (£m) 1,225 +1 4,162 +5 16,924 +8
Other finance (£m) 1,053 +19 1,053 +19 4,281 +5

Source: Asset Finance International

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UK asset finance new business holds steady

The UK asset finance market has maintained a full-year growth rate of 4% as latest figures show the market held steady during November 2017.

New figures released today by the Finance & Leasing Association (FLA) show that asset finance new business (primarily leasing and hire purchase) in November was £2.5 billion, a similar level to the same month in 2016.

The commercial vehicle finance and IT equipment finance sectors reported new business up by 5% and 1% respectively, compared with the same month in 2016, while new finance for plant and machinery fell by 3% over the same period.

Geraldine Kilkelly, Head of Research and Chief Economist at the FLA, said: “The asset finance market reported a broadly stable picture across the main asset sectors in November, and remains on course to report a record level of annual new business in 2017 of around £32 billion.”

Total FLA asset finance growth to the end of November is 4%, but excluding high value items, it is 6%.

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Total FLA asset finance (£m)  2,541  0 7,962  0  31,804  +4
Total excluding high value (£m)  +4  7,936  +3  30,919 +6
Data Extracts:
By asset:
Plant and machinery finance (£m)  481  -3  1,464  -2  6,506  +10
Commercial vehicle finance (£m)  691  +5  2,061  +4  7,574  +2
IT equipment finance (£m)  235  +1  642  +5  2,246  -4
Business equipment finance (£m)  209  -4  624  +4  2,566  +9
Car finance (£m)  738  -2  2,538  -1  9,854 +5
Aircraft, ships and rolling stock finance (£m)  8  -60  45  -45  574  +18
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Call for government support as asset finance grows

The UK government has been urged to support the growth of the invoice finance and asset-based lending sector in 2018 after newly-released figures revealed that demand reached record levels last year.

Data released by UK Finance shows that total sales (turnover) of clients supported by invoice finance and asset-based lending are up 4% for UK clients, standing at £214 billion for the first three quarters of 2017.

Total advances (the amount of funding being provided to clients at the close of the most recent quarter) were up 13% year-on-year to a record level of more than £22 billion for UK businesses.

Client numbers remained stable at just over 40,000 UK clients.

The data revealed that the exporting picture is particularly strong, with sales from clients through export invoice discounting facilities up 33% year-to-date for Q3 2017 and export factoring up 11% over the same period.

Matthew Davies, director, invoice finance and asset-based lending at UK Finance, said: “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.

“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.

To address this, the UK Government is expected to bring forward revised Business Contract Terms (Assignment of Receivables) Regulations.

UK Finance represents the finance and banking industry operating in the UK, with around 300 members providing credit, banking, markets and payment-related services.

The new organisation brings together activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association.

Source: Asset Finance International