A challenged sector hit by the Alternative Finance providers, and newer fresher lenders entering; giving stagnant and reducing client numbers for the traditional invoice finance market.
The traditional IF market place has been hit severely by the ease of access to alternative finance products. The introduction to unsecured and secured loans, asset and industry specialist products have peaked. This is predominantly due to the easy access of funds through large commercial firms and wealthy investors looking for higher rates of return on their money due to a low base rate. Many companies looking for traditional Invoice Finance take out an alternative product because it is easier to understand. Companies are taking out unsecured loans to grow their business, then find themselves running out of money with orders to fulfil; of course we all know that invoice finance grows with a business.
P2P lending platforms offer invoice finance but not as we know it! There are a number of well-known lending platforms offering IF who have made an internet industry based on algorithms and ease of access to funds for clients. A diverse attitude to due diligence and security are all aspects platform lending, as well as a relatively cheap cost of funds for the client with little or no on going commitment.
Collectability is a big factor that arises in both situations. Lending money is the easy part, ensure you collect it again is much harder. We are already starting to see some of these companies place sanctions on specific industries and they are beginning to require higher levels of security. The main challenges for traditional Invoice Financiers is due diligence and security vs a website.
The top and the bottom of it. Over the past few years we have seen a number of the higher tier lenders consolidate or leave the market all together; thus price being more and more important. The middle tier has reacted by some shifting into this space and some fishing into lower tiers. The challenges are mainly seen at the bottom of the invoice finance tree.
The introduction of single invoice finance, spot factoring companies and smaller lending invoice finance has really affected the majority of the lenders in the traditional IF space. The ability to “pick and choose” invoices / debtors has led to many businesses taking spot IF rather than being forced into a full facility in a traditional market. This can be seen as a challenge to the IF arena due to the fact that many are now taking spot IF rather than a full facility that would have been the only thing on offer; however (and ending on a positive note) these products can be seen to be drawing clients into the IF space that previously would have been under capitalised.
This article was published in the February 2017 CCR Magazine on page 26. Please click here
Gareth Fawke – Director
Inksmoor Finance Group