UK leading Europe in use of asset based finance
Asset based finance now 15.7% of the UK’s GDP compared to 10.5% for France.
The UK is leading Europe in the use of asset based finance (invoice finance and asset based lending), said the Asset Based Finance Association (ABFA), the body representing the asset based finance industry in the UK and the Republic of Ireland.
The ABFA said that asset based finance represents 15.7% of the UK’s GDP compared to a European average of 8.5%. In France the use of asset based finance represents 10.5% of the country’s GDP and in Germany just 6.5%.
UK businesses have traditionally been more rapid adopters of innovative financial products than the rest of Europe.
The ABFA explains that invoice finance provides businesses with working capital secured against the value of invoices that they have issued to their customers. This flexible financing arrangement allows them to switch from relatively hard to obtain traditional forms of finance to less risky and more freely available funding. This has the double benefit of substantially increasing the working capital available to a company when they switch whilst as they scale up their business the funding available grows as they grow.
Jeff Longhurst, chief executive of the ABFA, said: “It’s clear that asset based finance is now the mainstream working capital alternative to ‘traditional’ lending.
“Once put in place an invoice finance or asset based lending programme can provide much greater flexibility for a business to grow their business without having to negotiate new lending agreements with their funder. As the business expands and issues more invoices the ability to draw down funds increases proportionately.
“The use of asset based finance is rapidly growing throughout Europe not just because it has helped to fill the gap left by the reduction in traditional lending but because it is a superior product. It’s great to see UK businesses continue to be at the forefront of the expansion in the use of asset based finance.”
The use of asset based finance has increased throughout Europe in the past year. The total amount written has risen in 11 out of the 14 member countries of the EU Federation of Factoring & Commercial Finance (EUF), increasing by an average 7.6%.
The ABFA explains that 80% of asset based finance is invoice finance, while the other 20% represents the fast-growing area of asset based lending, in which businesses can raise money secured against a range of other assets they own, including inventory, property and machinery.
Jeff said: “Both SMEs and larger businesses are recognising that invoice finance can often be the quickest and most easily-accessible form of funding, which gives these businesses a crucial edge to take advantage of growth opportunities.
“We are seeing more businesses taking advantage of invoice finance to fuel their growth. More and more businesses are beginning to view their invoices as an untapped asset.”
The ABFA points out that the three months to September 30 2014 was the biggest ever quarter for asset based finance in the UK, with a record £19.3bn of funding provided to businesses at the end of the quarter.
According to figures from the ABFA, the combined amount of invoice finance and asset based lending provided to businesses in the UK leapt by 12% in the last year, from £17.2bn at the end of September 2013.
