The amount of finance advanced to the UK’s smallest businesses* through invoice finance jumped by over 60% in the last year, reaching £711m up from £435m the previous year, according to the the Asset Based Finance Association (ABFA), the body representing the invoice finance and asset based lending industry in the UK and the Republic of Ireland.
The ABFA says invoice finance, securing finance against unpaid invoices, is popular amongst businesses of all sizes, but is particularly widely used amongst SMEs.
The ABFA adds that the amount of finance advanced to the UK’s smaller businesses is the highest year on year boost since the recession, as businesses increasingly shift away from more ‘traditional’ types of finance and turn to invoice finance to help finance their business growth.
The ABFA adds that smaller businesses using invoice finance received an average of £52,000 in invoice finance in Q1 of 2016, up over 60% from an average of £32,000 in the same period the previous year, to help them grow and develop their businesses.
Jeff Longhurst, chief executive of the ABFA, said: “Invoice finance is now one of the primary ways that small businesses access funding. We are seeing a growing appetite amongst SMEs to secure funding through this route with businesses securing ever increasing amounts.
“Since the credit crunch accessing funding through traditional paths such as business loans has remained challenging for smaller businesses, and so the flexibility of finance options, competitive prices and the quick turnaround of decisions associated with invoice finance is a real draw for these businesses.
“Whether small businesses need capital for growth plans, to expand order books or to boost cashflow in order to help manage the risk of bad debts – borrowing against unpaid invoices can be an effective means to achieve these goals.”
The ABFA adds that the total amount advanced to UK and Irish businesses through asset based finance (invoice finance and asset based lending) at the close of 2015 was £19.3bn, up from £18.9bn the previous year.
The ABFA explains that around 80% of asset based finance is invoice finance, while the other 20 per cent represents the fast-growing area of asset based lending, in which in addition to debts, businesses can raise funding secured against a range of other assets they own, including inventory, property, and machinery.