Big businesses buy into asset based finance

Invoice finance, traditionally used by small and medium enterprises (SMEs), is also gaining popularity with big businesses enjoying increased demand from customers according to the UK-based Asset Based Finance Association (ABFA).

Data for 2015 – recently released by the ABFA – shows the number of larger UK businesses using invoice financing to supplement more traditional sources of cash rose 25% to 893 last year from 713 in 2014. The study counts businesses with annual turnover of £50m and above.

One of the appeals is speed. The ABFA, the trade body representing the majority of the invoice finance and asset based lending industry in the UK and Ireland, says that as financing is secured against assets, it is seen as a less risky form of lending for funders and means larger companies can access finance faster than through traditional channels. This gives companies the option to capitalise on upticks in demand from customers and drive future growth by securing financing against existing assets.

Some 80% of asset based finance is secured against unpaid invoices, with the remaining 20% made up of asset-based lending where businesses can secure financing against debt, inventory, property and machinery.

“Asset based finance is now one of the primary sources of funding for businesses of all sizes,” says Jeff Longhurst, the ABFA’s chief executive officer (CEO). “It is competitively priced and providers can also offer quicker decisions on asset based finance than on traditional unsecured lending.

“Previously, this form of commercial finance had been associated with SMEs but we’re seeing increased appetite from the UK’s largest businesses to secure finance to fulfil growth plans and expand order books.”

Longhurst adds that asset based finance is now an “established part” of the commercial finance market and there is increased appetite from UK businesses of all sizes to secure funding this way.

“While the availability of finance from traditional sources was relatively slow to recover from the credit crunch, the asset based finance market opened its doors to businesses of all sizes and there remains significant capacity to provide more finance to more UK businesses,” he adds.

Momentum in Europe

According to the ABFA the amount of financing secured by UK businesses against stock rose 22% last year, from £499m to £607m. Although cautious, smaller business are joining in with SME factoring activity up 3% year on year.

Overall, the amount of funding secured by businesses through asset based finance, including invoicing, increased by £260m over the year to hit £19.7bn at the end of 2015.

Earlier this year, the ABFA reported that asset-based finance supports 15.1% of all UK company turnover at £144.86bn. Although more companies in continental Europe are using it, the UK figure compares with 10.9% of company turnover in France and 6.8% for Germany. Asset based finance appears to have established itself more in some of Europe’s smaller economies, with figures of 14.5% for Belgium, 13% in Ireland and 12% for Portugal.

A growing number of the UK’s biggest businesses are securing asset based finance:

Asset-based finance

Source: Asset Based Finance Association (ABFA)

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