The opportunties ahead for the invoice finance industry
Tony Cox, managing director of premier independent invoice financier Venture Finance, looks back at the past 12 months and considers what's in store for the invoice finance industry in 2007
Taken as a whole, 2006 was a positive year for the invoice finance and asset based lending (ABL) industry, although there is an element of frustration that small businesses in particular are still not fully recognising the benefits of these services. This has resulted in less growth in the factoring sector than one would have hoped. However, the responsibility for raising awareness lies with key industry players. The challenge is to communicate the benefits in a simple and informative manner.
Looking ahead, I believe 2007 will be a very interesting year defined by bigger deals at the top end, an increase in cross-border activity and more consolidation in the mid market.
New entrants offering ABL and structured finance services in 2006 led to increased competition, with too many providers chasing too few MBO/MBIs. It's a little early for consolidation in this sector but, moving forward, we will see firms completing larger scale deals. Values will be in the region of £25 - £250 million, maybe even higher.
As a result of this increase in bigger deals, I believe there will be real growth in the number of syndicated deals completed in 2007. This approach - where more than one lender is involved - is already very popular in the US, as it allows lenders to spread the risk. Although not unheard of in the UK, syndication is still relatively new in this country. At Venture Finance, we completed our first syndicated deal around 10 years ago and there now seems to be a growing acceptance for this type of partnership within the market.
In the larger deal arena, there is also opportunity for greater cross border activity. Appreciation for the flexibility of invoice finance is growing and the UK in particular holds a very valuable position. Firms in the US and across Europe prefer to enlist a UK provider when working across territories thanks to the commonality of language. In the UK we also have more lender-friendly laws than the majority of European countries, representing a key advantage - one which needs to be maximised over the coming 12 months.
With regards to challenges within the industry, compliance has been a permanent fixture on people's agenda for sometime now, and continues to be a major issue as we move forwards. As the level and complexity of compliance increases, so does the cost. There is a relatively finite audience for invoice finance and, as margins are squeezed, the capability to pass on these costs to the client is not available. As a result, we've ended up with a price war. This is good for the consumer but not so great for the lender. With profits taking the hit, smaller financiers will find it extremely hard to survive, driving consolidation.
Last year, Venture acquired City Invoice, while SME Invoice Finance bought RDM Factors. On the whole, though, it's fair to say that consolidation has been fairly slow to happen. However, I predict that this will pick up in 2007. I also think we will start to see partnerships involving leasing firms and invoice financiers linking with smaller mortgage-based operations.
The overarching key to success in 2007 will lie in the product range offered by lenders. As an industry we need to branch out by offering a more comprehensive range of facilities. I don't know what those products will be just yet, but I do know we have to provide a full service to meet the ambitions and aspirations of our clients. Above all though, we must continue to communicate and educate businesses, large and small, on the benefits of invoice finance. The industry has come a long way in its 40-year history but there is more to achieve.
About Venture Finance - www.venture-finance.co.uk
Venture Finance is a premier independent invoice and asset-based financier, providing creative funding solutions for businesses from start-up to a turnover of £200 million.
Venture, a wholly owned subsidiary of ABN AMRO Bank N.V., is twice winner of Credit Today's Factor & Discounter of the Year award in 2005 and 2006
Core services are factoring and invoice discounting, which use the value of outstanding invoices and other assets to release ongoing working capital back into a business. Venture handles over £3.1blillions in Client invoices per year.
Venture Finance was the first independent financier authorised as a 'lender' of the Government's Small Firms Loan Guarantee Scheme by the Department of Trade and Industry (DTI) and has lent over £14m to clients through the scheme.