The Asset Based Finance Association (ABFA) is among six trade associations that have joined new trade body UK Finance. Leasing Life caught up with ABFA chief executive officer Jeff Longhurst to discuss the growth of asset finance and the potential benefit that UK Finance may bring
As a consequence of being in a bigger organisation, the profile of invoice finance within the banking members in particular, will grow as well,” Jeff Longhurst, chief executive officer of the ABFA tells Leasing Life.
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“I am optimistic that actually by being part of a larger organisation we will see more and more businesses being recommended invoice finance by the wider membership of UK Finance.”
Invoice finance and asset-based lending have continued to grow in the UK. According to Longhurst, in 2017 members of the ABFA purchased approximately £300bn worth of sales in the UK and Ireland, £275m of which was made in the UK alone. He believes this is a good sign for the industry and the economy as a whole, showing increased positivity in the future business climate.
“We have had quite a big jump year-on-year over the quarter, but also the year end as well, which is good news for all of us, and hopefully a sign that the economy is picking up as well,” he says. “If they are looking at increasing the cash that is available to them, then businesses must have a little bit more optimism about the future.”
The popularity of asset-based finance has not been limited to SMEs. In its member results in July, the ABFA revealed a surge in invoice finance among larger corporations for mergers and acquisitions, and a higher demand for big-ticket deals.
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By GlobalData“This is a trend that has been happening over the last five to ten years, of bigger businesses over £100m turnover turning to invoice finance and asset-based lending for funding their growth,” he says.
Longhurst says this is a result of increasing awareness of the ease and availability of these alternative lending options. “It has seen relatively good growth this year, especially when compared to other forms of finance.
We have been working hard, as an industry, to get this ‘best kept secret’ out into the marketplace,” he adds, “yet people are not really aware of what invoice finance and asset-based lending are and what they can do.”
He explains that the ABFA has endeavoured to reach out and boost awareness of asset finance among businesses, adding that the message is beginning to get across among big banks with invoice finance arms.
He says that banks need to be aware that asset finance is a good product for them as well as a potential customer, and emphasises its low-risk nature. “It is a very beneficial product for their customers, and also a reasonably beneficial product for the bank themselves,” he says. “Because it is a low-risk product, historically the level of bad debt has always been very low in this area.”
The induction of the ABFA into UK Finance, a “broad church” representing UK financial industries, is a way that its message can be better spread, according to Longhurst. “It is a much bigger resource. It gives us an opportunity to represent most of the finance providers in the UK,” he says.
The amalgamation of six different industry bodies, each with their own aims, is not straightforward. Longhurst says the formerly independent groups have retained a sense of their own operations as part of UK Finance, through ‘product boards’.
“The way it has been structured is that there is a separate product board for invoice finance and asset-based lending. The previous executive committee of the ABFA will be the members of that product board,” he says.
“All the things that we used to do will continue, but now we will have the resource and the strength of the whole of UK Finance behind us.”
By their nature, some invoices are harder to finance. Longhurst notes that construction, with its many stages, can prove more difficult than invoices from other sectors.
“It gets harder for us when you are involved in construction, those are not necessarily simple, straightforward debts to fund,” he says. “The easier the deal, the simpler the industry is and the method of invoicing is, the easier it is for invoice finance to play a part.”
He adds that by hiring additional personnel, in the form of quantity surveyors, some members of the ABFA have been able to develop better invoice funding solutions for the construction industry. Longhurst suggests increased understanding in specific sectors has allowed ABFA members to better tailor invoice finance packages.
“Over the last few years we have begun to look at those more complicated industries and develop methodologies for funding, even staged payments, within a construction contract,” he says.
“Some of our members now employ quantity surveyors themselves so they can actually properly assess the work that has been done and compare their assessment with the work done by the quantity surveyor on the contractor.”
Longhurst says that just five years ago this approach to providing invoice finance for construction would not have been possible. “It is an industry that has been around for about 40 years, but we are still learning different ways of handling situations,” he adds.
By joining forces with other bodies representing the UK’s finance industry, Longhurst believes the invoice finance and asset-based lending industries will be strengthened.
“It is a very positive step forward for the members of the ABFA but, importantly, it is a very important step forward for those people who are using or thinking of using invoice finance and asset-based lending,” he says.
With its induction into UK Finance, Longhurst seems confident that ABFA will be able to spread its message, and increase the awareness and popularity of asset-based lending and invoice finance.
