Recent changes in the market have not gone unnoticed amongst business owners and professional advisors with two high street banks removing factoring from their core product offering to existing clients.
Demand for traditional invoice factoring has reduced because:
- During the pandemic some businesses swapped their invoice finance working capital lines for fixed rate low-cost Bounce Back and CBILS term loans subsidised by the Government.
- There has been an increase in alternative funding solutions, such as spot/selective invoice finance and unsecured loans, which have given business owners more choice and the ability to self-solve at pace. In comparison to traditional invoice finance products, these products are routinely operational within a week.
- Lower cost and easier to use accounting software is now available for start-ups and small SMEs. The adoption of new systems and, importantly, their integration with funders platforms, means lenders are more willing to offer confidential facilities.
Another key driver for this shift away from traditional factoring is an ongoing refocus on larger SME businesses, reflecting the belief that these larger clients provide a better risk/reward balance.
So where does this leave your business if you are impacted by these changes? As always this will be good news for some, as a move to disclosed invoice finance should reduce costs and the adoption of more modern real time systems will improve your day-to-day experience. That said, you may be left questioning ‘why weren’t we offered this sooner?’.
For others uncertainty in the short term and a change of service provider looms. The good news for business owners affected is that there are several strong independents who continue to offer factoring as a core product alongside disclosed and confidential invoice discounting. They will often take a more pragmatic view on risk issues and may offer confidential facilities, compared to a high street lender.
Whilst it is undoubtedly an unwanted disruption and another challenge for business owners to face into, it is an opportunity to take stock and assess what the best funding structure is to support your plans.
