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Why has invoice financing risen in popularity?

Category: Features — Mark on August 8, 2013

Over the past few years invoice financing has become very popular. Every year since 2008, the amount borrowed in this way has grown by at least 9%. There are several reasons for this growth, and here we will consider a few of them.

The financial crisis

By far the biggest reason for the growth of alternative borrowing is the financial crisis. When the recession began in 2008, many UK firms which wanted to borrow money suddenly found that they were unable to do so. Lenders simply turned down their applications. The amount lent to UK business by traditional financial institutions since 2008 has fallen by a staggering £57 billion.

This slowdown in lending left thousands of firms with no choice, they had to look elsewhere for the cash they needed or go out of business. Fortunately, many business owners quickly discovered that they could raise the money they needed using invoice financing.

Word of mouth

Prior to the financial crisis, most business owners had not even heard of invoice financing. Today, that is no longer the case. Those firms which have used it as a way to borrow money are now telling other companies about it. This has had a snowball effect, leading to more and more firms seeking to borrow money using their invoices as security.

It is quick and easy

Invoice financing has also grown in popularity because it is a very fast and easy way to borrow money. With this form of borrowing, there is no need to fill out reams of paperwork or to draw up a business plan.

The decisions about how much will be lent and how much it will cost are made in a few days or even hours. Many traditional lenders take weeks to decide whether they will lend or not. Often when they do decide to lend, their terms and conditions are long and difficult to understand. In addition, the charges can be high. With invoice financing, the terms of the loan are short and the exact cost is easy to determine.

The speed of borrowing in this way is extremely useful to modern firms. They often need to move fast to take advantage of new business opportunities or to buy raw materials at a discounted rate. Being able to secure a loan and get the money within just a few days gives firms a big advantage, which is another reason invoice financing is becoming so popular.

A form of borrowing that any kind of business can use

The fact that invoice financing has become more accessible has also helped to make it more popular. In the past, to qualify for this kind of finance, a firm would have to be well established and have a turnover of at least £50,000, as well as a good credit record.

Today, firms do not have always have to meet such stringent criteria to borrow money using invoice financing. These days, it is even possible for some sole traders and start-ups to qualify for this kind of loan, which is another reason it is growing in popularity.

'Disclaimer: The information contained in these articles is of a general nature and no assurance of accuracy can be given. It is not a substitute for specific professional advice in your own circumstances. No action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a consequence of the material can be accepted by the authors or the firm.

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