Pure invoice financing growth slows

Invoice finance is usually preferred by companies who generate seasonal revenue.

The use of pure invoice financing by small to medium sized businesses has slowed as the UK economy stagnates.

In the fourth quarter of 2017, pure invoice financing was £18.93 billion, a modest rise of 0.25 per cent from the third quarter of 2017, according to figures from UK Finance.

What is pure invoice financing?

It’s a form of lending that allows companies to release cash from unpaid invoices within 24 hours of them being raised, subject to credit checks. This claims to solve the problem of poor cashflow amongst small to medium businesses.

One provider, GapCap, lets businesses send a raised invoice to the Hitachi finance department. They then pay the business up to 85 per cent of the invoice amount within 24 hours. The remaining 15 per cent follows once the client has paid the business in full.

Despite the recent sluggish growth, the use of pure invoice financing was up 5.4 per cent from £17.97 billion from the end of 2016. UK GDP rose 0.39 per cent between the third and fourth quarter of 2017.

Aaron Hughes, managing director at Equiniti Riskfactor, commented, ‘While the balance of invoice finance did not grow as rapidly as it has in many quarters, it is reassuring to see that borrowing remains in correlation with the UK economy, ensuring that businesses and lenders are not over-stretching themselves.’

Late payments boosting flexible invoicing

The Federation of Small Businesses recently found that over four in five small businesses were being paid late by larger firms which seems to have led to an increase in more flexible cashflow arrangements.

It’s believed that businesses that trade seasonally and make the most of the revenue during a few month of the year favour pure invoice financing due to the lack of a monthly fee. Most providers charge a one off fee and then a small percentage of the sales invoice value.

Equiniti said it expected pure invoice financing to rise to £20 billion in 2018.

Further reading on pure invoice financing

Five businesses using invoice finance to fuel growth

 

Michael Somerville

Michael Somerville

Michael was senior reporter for GrowthBusiness.co.uk from 2018 to 2019.

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