Brexit woes could slow invoice finance growth

Equiniti, UK-based outsourcing business focused on financial and administration services, said that there is a clear link between increases in GDP and the growth of invoice finance, with small- and medium-sized enterprises (SMEs) gaining or losing confidence from the country’s economic fluctuations.

Equiniti cited figures released by trade body UK Finance that revealed that invoice finance hit GBP18.9bn at the end of the third quarter of 2017 – a year-on-year increase of 14% from GBP16.5 billion at the end of the third quarter of 2016.

Although GDP has remained in positive growth in each quarter since 2014, the quarters with relative declines have caused a knock-on effect for invoice borrowing, Equiniti said. For example, in the first quarter of 2016, GDP only grew by 0.16% and the balance of invoice finance decreased by over 3%.

Conversely, in the fourth quarter of 2016, 0.57% growth in GDP corresponded with a 9%  rise in invoice finance – the highest quarterly rise on record.

Invoice finance continues to be the preferred method of business lending for SMEs in the UK, outstripping overdraft lending to SMEs, said Aaron Hughes, managing director at Equiniti Riskfactor.

It is regarded as the optimal way to fund business growth because lending is directly linked to, and secured on, their customer’s sales ledger and so its continued growth over the past few years is unsurprising. However, additional research and analysis from Equiniti demonstrates that the confidence of businesses to borrow is closely tied to the economic performance of the country.

Comparing the growth in invoice finance with that of the country’s value is a clear indicator that small to medium businesses will continue to strive for growth as long as GDP continues on an upward curve. It also raises the worry that, should the UK suffer as a result of Brexit or any other macroeconomic downturn, SMEs will batten down the hatches, stop borrowing and run into difficulty as a result.