The Asset-Based Finance Sector Assists UK Economic Recovery

One year on and the UK’s economy has expanded faster than any other member of the G7 group of leading economies, with multiple forecasts being revised upwards. Helping play a significant part in this economic revival has been the asset-based finance sector. The businesses supported by asset-based finance now account for more than 15% of UK gross domestic product (GDP).

Since the dark days of 2008-09, the total annual turnover of the UK industry’s client base has seen a strong upward trend, growing from £211bn in 2010 to more than £250bn in 2012. Last year this reached over £275bn.

The industry is continuing to surge forward with new figures demonstrating the strongest performance since the recession. The latest figures, covering the fourth quarter of 2013, show the industry advancing more funding to small and medium enterprises (SMEs) than ever before and record annual turnover for the industry’s clients.

Total funding advances to clients has now hit £18.3bn, the highest quarterly balance ever. In December 2009 this balance was £13.9bn, but since then it has grown steadily most quarters to reach over £18bn in just four years, an aggregate growth of some 32% in funding advanced. The level of funding has grown 11% in the past year alone.

This has supported significant growth in clients’ sales. At the close of 2013, the sales of the average asset-based finance client had increased by 10% year on year (YoY) compared to UK gross domestic product (GDP) growth last year of 1.8%. Since 2010 client sales figure show a cumulative current growth of some 30% in three years, underlining just how much the asset-based finance sector has supported UK and Irish firms since the onset of the financial crisis.

The Q413 sales figure of £72.7bn is also a record high, up £1bn on the same period a year earlier. It is only the second time the figure has been over the £70bn mark for a single quarter. The export figures for both factoring and invoice discounting are also showing robust growth, with YoY increases of 18% and 12% respectively.

Benefits for Smaller Companies

Four in five UK businesses using asset-based finance have annual turnovers of under £5m. Many smaller companies find the advantages of factoring in particular extremely useful, such as allowing the outsourcing of credit control, freeing up management time to focus on running the business.

Invoice discounting and asset-based lending (ABL) are increasingly popular choices for growing and larger businesses however and a considerable proportion of the increase in funding provided by the industry overall is being delivered via these facilities. The industry provides more funding to clients in the £100m+ turnover bracket than any other segment, with the figure at £5.5bn at the end of Q413.

In terms of sectoral analysis, the ABFA’s latest data indicates that asset-based finance is being used extensively to support UK manufacturing, with over 12,600 such businesses using these types of funding. The figures show distribution, services, transport and construction sectors also drawing significantly on asset-based finance products.

Apart from financing growth opportunities, the demand for asset-based finance is also being driven by ever increasing requirements for working capital. A report from commercial payment system Sage Pay sees SMEs being
owed a staggering £55bn in unpaid invoices
. With the UK government focusing on payment practices and increasing access to finance, the role of the asset-based finance industry in helping business unlock the value of their unpaid invoices has never been greater.

Further evidence of the rapid growth in the sector can be seen in research from digital marketing agency SiteVisibility. This shows that the term
‘invoice finance’
was among the most popular website search terms when it came to business finance in 2013.

All of which makes a big statement. The asset-based finance sector is providing the largest amount of funding ever to over 43,400 clients, which in turn is supporting record sales. The figures are extremely heartening to see and show that the sector is playing an increasingly integral part in the UK’s economic recovery.

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