According to the Asset Based Finance Association the amount of money advanced to SMEs in invoice finance has increased. £711 million was loaned to small businesses in the first quarter of 2016. An increase of 63% on the same period in 2015.
This figure represents the highest increase since before the recession hit in 2008 with invoice financing solutions rising in part due to the uncertainty of high street lenders to lend to small firms.
Small firms use invoice finance as a way of borrowing against their invoices not yet paid, enabling them to free up funds, boost cash flow and help manage the risk of bad debts.
But while invoice finance is part of the larger asset-based finance market, it accounts for over 80% of it, making it one of the most popular financial products for small businesses.
The traditional vs alternative invoice finance market
The traditional invoice finance market (those from recognised lenders, e.g. Bibby) has been achieving growth of just 2% year on year which is steady. But considering the alternative invoice finance market has been enjoying even bigger gains it might be well advised to search the entire market before committing all your invoice finance eggs into one traditional-sized basket.
Alternative funding, like peer to peer (P2P) has ushered in the idea of selective invoice financing. It helps SMEs acquire the funding they need without having extensive contracts and without giving up access to their full sales ledger. A kind of invoice finance piggy bank to break into as and when they need it.
The problem for SMEs in the past has been trying to access invoice finance from mainstream funders or trying to get better deals on fees and charges. But when lenders have found themselves over-exposed on overlapping credit accounts, it has become limiting for those looking to increase their trading on those same customers and being refused.
Alternative and P2P lenders have noticed this and attempted to bridge this funding gap in the market by topping up the funds they can access without having to move between providers. In effect making the alternative finance become a complementary product to that offered by traditional lenders. A huge benefit to SMEs looking to grow and boost their cash flow.
Embracing the new growth of invoice finance from the alternative finance industry is on the rise through online invoice trading platforms where invoices are ‘auctioned’ off to the lowest bidder (the idea is that funders bid down on the cost of financing invoices).
The benefit of this type of invoice finance is that you only use it when you need it on selected invoices and there are no charges when applied when you are not using the service.
This kind of rapid growth is sure to have an effect on traditional providers as selective invoice discounting develops into additional invoice finance facilities.
Alternative finance has shaken up the traditional lending market and while alternative invoice finance is flourishing it is sure to spill over into the traditional lending market, which has seen much less marked growth.
So, whether you use traditional or alternative lending solutions to your invoice finance the market is soaring right now.