ADVERTORIAL
Open for Business
As an eventful 2016 draws to a close, Jeff Longhurst, CEO of the Asset Based Finance Association introduces the invoice finance and asset based lending industry and looks ahead to 2017
T
he asset based finance industry – invoice finance and asset based lending – has been supporting UK businesses for over 60 years.
In 2015 the industry provided working capital to over 40,000 UK businesses with a combined turnover of almost £300 billion. At any one time, the industry will be supporting UK businesses to the tune of around £20 billion. This all adds up to what is, by quite some distance, the largest and oldest ‘alternative’ finance sector around. The industry specialises in providing working capital to businesses in the real economy, financing businesses of all sizes. When it first developed in its modern form in the UK in the 1960s, factoring (the original and still best known form of invoice finance) was predominantly seen as a product for smaller businesses. However, in the years since then, invoice discounting and asset based lending have come more to the fore, with the industry building on its expertise in supporting small and mid-sized businesses to finance larger businesses, including corporates. We are now seeing more and more larger client businesses waking up to what asset based finance can do; at the end of Q2 2016, the industry was advancing over £14 billion to businesses with annual turnovers over £5 million. Case studies of businesses using asset based finance can be found on the ABFA website. It is an increasingly diverse and
competitive industry. ABFA members include high street banks, specialist and challenger banks as well as independent non-bank finance providers. Technology is making the industry ever-more competitive in terms of price and easier to access.
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WORKING THE ASSETS Asset based finance is just that – finance provided to a business against its assets. The most significant assets that many businesses will have are the debts owed to it by its customers – as represented by its invoices. So, in turn, invoice finance is
the most significant type of asset based finance and provides working capital to bridge the cashflow gap between doing the work and getting paid. For smaller businesses factoring is the most widely available type of invoice finance and in addition to the funding provided, a factor will provide credit management and collection services to the client. However in the UK significantly more funding is provided through invoice discounting, where the client carries out its own credit management as this is more suited to bigger businesses. In addition to invoice finance, many
ABFA members will also be offering wider asset based lending packages where, in addition to debts, client businesses can raise funding secured against a range of their other assets, including inventory, property, machinery and even intellectual property. Asset based lending packages are particularly useful for those businesses looking to acquire others as they maximise the cash available from those assets. What has set the industry apart
in recent years has been its ability to understand its clients and their requirements. This meant that the industry was able to continue to support its clients during the financial crisis and the subsequent credit crunch, and it has continued to provide more finance year- on-year since. The industry has significant capacity to
provide more funding to more businesses in future and is likely to become an ever- more important part of the commercial finance mix in the uncertain times ahead. More information about asset based
finance can be found at
www.abfa.org. uk and further details of the Standards Framework within which ABFA Members operate at
www.abfa.org.uk/standards.
DIRECTOR OF FINANCE 39
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