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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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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