January 12, 2023

2023: A Golden Year for Invoice Finance?

For asset finance providers, invoice finance represents an opportunity to invest in a familiar but countercyclical market.

Whereas many businesses in asset finance will see 2023 as a year of lower demand, the opposite is true in the invoice finance market, especially for non-bank players. In a downturn, working capital is at a premium, resulting in the potential for increased business volumes and enhanced fee earning opportunities in the invoice discounting and factoring sectors.

The uptick over the next 12-18 months may be higher still, as market volumes benefit from a range of post-Covid circumstances involving both the repayment of government support scheme debt and its replacement with other forms of working capital. At the same time, liquidity for many fintech working capital providers will dry up.

Combining invoice finance with an existing asset finance operation brings additional benefits. Where credit assessment takes place on both the client and every end-customer (of which there are many), a substantial and powerful dataset is created. Cross-sales opportunities can be pursued, and the dataset provides a dynamic view of changing risk conditions, which can be segmented in line with prevailing credit strategy.

Invoice finance typically has exceptionally low levels of bad debts, and although in a downturn, like asset finance, the risk of bad debt and fraud is increased, as trade debts these tend to be less destructive than a larger asset finance loss.  Importantly, invoice finance providers have a constant view of a client’s liquidity position, so are both well-placed and experienced in managing difficult client situations. In fact, finance providers who offer both asset and invoice finance claim that arrears management is enhanced by combining the different approaches each uses.

Invoice finance is not regulated by the FCA. So compared to many other SME lending activities that fall under new Consumer Duty regulations, its status allows faster development of a new business proposition with more manageable regulatory demands.

Given its counter-cyclical nature, invoice finance provides a natural hedge to asset finance that should be attractive to companies seeking continued growth, while providing an early warning system that can shape credit strategy and protect against credit losses.

In today’s economic environment, market entry needs to be rapid, with low costs and a strong likelihood of success. This is where we can help with three realistic options:

  • acquisition of a well-run existing business (potentially operating successfully with relatively expensive cost of funds)
  • developing a tightly defined, fast-to-market new build
  • deploying capital with an already-established player

Depending on the choices you make, time-to-market can be three months, and we can walk you through every stage of the development.

Jeff Longhurst Finativ
Author

Jeff Longhurst

Jeff has accumulated over 40 years of experience in the invoice finance and asset-based lending industries, with CEO/managing director positions in clearing bank subsidiaries, specialist asset-based lenders and independent invoice finance providers.

Jeff is a former chairman and CEO of the Asset Based Finance Association (UK trade association for invoice finance) as well as a member of the Executive Committee of the EU Federation for Factoring and Commercial Finance.

Subscribe to INSIGHT

Subscribe to our newsletter to receive each issue directly in your inbox. Unsubscribe at any time. View our privacy policy here.
Subscription Form

Related Posts