GE Capital has predicted
€112bn of potential growth in invoice finance – but the sector has
to overcome its stigma first, writes Georgina
Lavers.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
Invoice finance could create
€112bn in European GDP growth and nearly 3m jobs by 2020 – that is
according to a report by GE Capital, the finance arm of General
Electric.
To reach those heights,
however, the industry must overcome two obstacles: businesses’
ignorance of it as a means of alternate working capital; and a
stigma that has persistently dogged the sector since its
beginning.
Invoice finance, which
provides businesses up to an 85% advance in cash for their
invoices, had a lending volume of €989,951m last year across
Europe, and GE Capital has predicted that the next decade will
recoup significant returns.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataAccording to the report,
which investigated the economic value of the funding model, at
current levels of growth and usage, invoice finance will contribute
€59bn of combined quarterly GDP across Europe’s four biggest
economies, and 1.66m jobs will be reliant on it by 2020.
Increase in
uptake
Projecting an increase in the
uptake of invoice finance across France, Germany, Italy and the UK,
which would add a further €53bn, the report’s authors calculate
€112bn of combined quarterly GDP and 2.59m jobs would be dependent
on invoice finance in nine years.
The basis for additional
uptake of invoice finance in the report is given as a consensus
among factoring associations interviewed that 6-10% of businesses
in each market not currently using invoice finance are eligible and
would find it beneficial, which the report equates to a 15-20%
boost in terms of GDP contribution.
This sentiment is echoed by
John Walker, national chairman of the UK’s Federation of Small
Businesses.
Walker who said many small
businesses find it difficult to access finance through the
traditional bank method but still need finance to cover cash flow,
and said using invoice finance can help businesses get paid on
time, as well as improve their cash-flow.
GE Capital, which offers
invoice finance within its Commercial Finance and Corporate
Structured Finance divisions, is understandably keen to promote the
sector, and it compiled the report using statistics from trade
bodies, central banks and interviews, as well as its own
independent data.
The economic models used are
based on economic, financial, business, labour market and
demographic data for each of the four countries.
Short-term
funding
The report identifies the
provision of very short-term funding, flexibility over use of
finances, an easy application process and protection against
non-payment of invoices as the main advantages to invoice finance –
assertions which are strongly backed by John Atkinson, head of
commercial business at Hitachi Capital.
“Invoice finance has low
set-up costs and a choice of suppliers [ie, not just the bank], so
all your eggs aren’t in one basket,” said Atkinson.
Atkinson identified
businesses that could profit most from the invoice finance sector
as B2B companies in recruitment, transport and manufacturing
industries.
However, Evette Orams,
managing director of Hilton-Baird Financial Solutions, said:
“Invoice finance is associated with particular sectors including
transport and recruitment, but actually its appeal is much
broader.
“There is no magic matrix –
the key is to look at each individual business on their own merits
and to build facilities around their specific
requirements.”
Disadvantages of the sector,
such as cost and the extra link in the transaction process
involved, are acknowledged but, based on interviews with invoice
finance users, the report concludes the largest barriers to its
widespread adoption are a lack of awareness and its perceived image
as a last resort for struggling businesses.
‘Perfectly
placed’
Kate Sharp, chief executive
of the UK’s Asset Based Finance Association, said: “It is bizarre
to think that an SME business looking for funding can find it, grow
as a result, and that this benefit could actually have a stigma
attached to it.
“Our set of figures for the
first quarter of 2011 showed turnover growth of 15% year on year,
with total client sales in the quarter of £55.8bn
[€65.5bn].
“This industry is perfectly placed to help many businesses
whose traditional funding lines are being tightened. It is time to
start to challenge old and ill-founded stigmas and start to look at
and appreciate the facts.”
