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In Focus Commercial Credit

The invoice finance marketplace

The new wave of providers has led to increased transparency and flexibility in the market – but what does the future hold?

John Regan Director, Platform Black john.regan@

The finance market in the UK is changing at a rapid pace. There has been much hype over disruption caused by fintech businesses which have introduced peer-to-peer lending, online auctions and alternative methods of finance into this space. The flood of new entrants is resulting in

increased transparency, and, furthermore, increased flexibility and falling prices, particularly in the invoice finance arena. The question is, will this trend continue? Historically, businesses wishing to finance

their invoices were subjected to a raft of fees which were additional to the cost of the money. These ranged from sign-up fees to facility fees and exit fees, and these were often difficult to calculate at the outset. As a result, it was hard to compare like with like and finance facilities often ended up costing considerably more than expected. The new wave of providers, however, have simplified fee structures, making them increasingly transparent. Many businesses now charge one single fee. This is good news because this

transparency is resulting in increased flexibility. With a clear view of the cost of finance, businesses are able to dip in and out as and when cash is needed, without incurring penalties. This is hugely attractive


to businesses which, for example, have seasonal cashflow or a small number of large clients causing cashflow to fluctuate. It has been pointed out that, despite

increased competition in the market, the actual cost of money has not dropped. This is broadly speaking correct, but the lack of other fees represents a direct saving and, historically, these fees were often as high as 30% of the total finance cost. More recently, sources of non-bank

finance have become increasingly interested in investing in the invoice finance market. This has increased the availability of cash and so prices are beginning to fall as these new entrants compete. Competition has been further increased by the trend towards online auction platforms where funders bid

to finance invoices. These auctions have created a vibrant market. There are two schools of thought

regarding what will happen next. Some argue that, as more and more businesses start to fund invoices and origination increases, it will become viable for larger institutions to become involved. This further increase in liquidity will drive costs down. The opposing camp argues that the

recent hype is resulting in the cost of money reaching the point where the return generated is not proportionate to the risk of default. They suggest that over time there will be a correction which will cause costs to level off, or even rise. It is difficult to tell what will happen to

prices in the medium term. These are driven both by macro-economic forces and industry sentiment, not to mention newspaper headlines. Ultimately, the huge growth in

The flood of new entrants is resulting in increased transparency, increased flexibility and falling prices, particularly in the invoice finance arena

innovation in this industry is ensuring that the gap left by the withdrawal of the banks is quickly being filled. The biggest challenge for a business looking to free up cashflow is not raising the finance, but in educating itself well enough to capitalise on what is available. CCR

October 2015

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