UK leading Europe in use of asset based finance
22 December 2014
The UK is leading Europe in the use of asset based finance (invoice finance and asset based lending), says the Asset Based Finance Association (ABFA), the body representing the asset based finance industry in the UK and the Republic of Ireland.
The ABFA says that asset based finance represents 15.7 per cent of the UK’s GDP compared to a European average of 8.5 per cent (see graph)*. In France the use of asset based finance represents 10.5 per cent of the country’s GDP and in Germany just 6.5 per cent.
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 says: “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 per cent.
The ABFA explains that 80 per cent of asset based finance is invoice finance, while the other 20 per cent 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.
“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 £19.3 billion 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 twelve per cent in the last year, from £17.2 billion at the end of September 2013.
UK ahead of its European peers for use of asset based finance ––value of asset based finance as a percentage of GDP
ENDS
About the ABFA
The ABFA represents the asset based finance industry in the United Kingdom and the Republic of Ireland. Its Members include the UK and Irish high street banks, specialist and challenger banks, the specialist businesses of some international banks and large corporates, and a number of independent non-bank finance providers. The ABFA is a source of information for those wanting to know more about the industry’s products and services.
In addition, in 2013, the ABFA established a new self-regulatory Standards Framework for its Members and their client. This Framework incorporates: a new ABFA Code and supporting Guidance, setting out the standards which clients and potential clients can expect from ABFA Members; an independent Complaints Process delivered by Ombudsman Services; and an independent Professional Standards Council. Further information about this Framework can be found at: www.abfa.org.uk/standards.
About Asset Based Finance
There are two basic types of asset based finance.
Invoice Finance: The two main types of invoice finance are factoring and invoice discounting. Both allow businesses to release the working capital tied up in their unpaid invoices. In both the finance provider will normally purchase the client’s outstanding invoices, providing an immediate initial payment of the majority of the invoice, with the remainder (less the financier’s fees) paid to the client on payment by the debtor. Factoring incorporates an added service element, with the financier normally managing the credit control and collections process. This makes it particularly suitable for smaller businesses. In an invoice discounting facility the client would normally manage its own credit control. The majority of the funding currently provided by the industry in the UK and Ireland is through invoice finance facilities.
Asset Based Lending: An asset based lending facility will provide a broader mix of funding including revolving and amortising structures against the entire range of business assets. Traditionally advances are available against debts, inventory, real property, plant and machinery, but can be arranged against intangible assets such as brands and forward income streams.
Press Contacts:
Mark Sanders-Barwick
Communications and Marketing Manager
Asset Based Finance Association
Tel: +44 (0)20 8334 0818
Mob: +44 (0)7973 268 916
Nick Mattison or Richard Crossan
Mattison Public Relations
Tel: +44 (0)20 7645 3636
Mob: +44 (0)7446 375 555
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Mark Sanders-Barwick
Communications and Marketing Manager
Asset Based Finance Association
Email: mark.sandersbarwick@abfa.org.uk
Tel: +44 (0)20 8334 0818
Mobile: Tel: +44 (0)7973 268916
Fax: +44 (0)20 8332 2585
Web: www.abfa.org.uk
