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• 15 Nov

  BCR Alternative and Receivables Finance Forum 2019

  Yesterday I was pleased to have been invited to speak on a discussion panel, at the BCR Alternative & Receivables Finance Forum 2019.

  BCR Alternative & Receivables Finance Forum 2019

  The discussion was titled "Are Auction Based Invoice Finance Platforms On A Sustainable Footing".

  Our Panel

  The panel was as follows:

  • Andy Davies a leading research and journalist in alternative finance - who acted as moderator.
  • Glenn Blackman, Partner at FundInvoice.
  • Andrew Whelan, Group CEO of Sancus.
  • Renaud Simons, Executive Director of Mitigram.

  Invoice Auctions

  Our panel quickly clarified that they are not aware of any selective invoice finance providers that are continuing to offer an "auction" based approach. Marketinvoice (recently rebranded MarketFinance) are thought to be the largest of the selective invoice finance (SIF) providers, and they originally offered an auction based approach to pricing. However, their FAQ states that the majority of their selective invoice finance transaction are now priced according to their pricing policy (rather than via an Ebay style auction approach), and all of their whole ledger funding is priced according to their pricing policy. They have also continued to sustain significant losses, but remain well capitalised at present.

  Regular readers of my blog may remember that GLI Finance took the decision back in February to shut down their supply chain finance division, Sancus Finance Ltd due to performance falling short of expectations. Therefore they have exited this space.

  Pricing, Losses & Transient Usage

  The panel were clear that the current pricing structure, inevitable debtor losses and the complete lack of any assurance of ongoing facility usage associated with SIF is unsustainable. MarketFinance, although still offering selective facilities, have expanded to offer whole ledger services and also business loans. I gave an example of how transient the selective market can be, whereby a customer chooses to discount a single invoice and then never uses the facility again. This leads to a huge customer acquisition cost that is not covered by the fee from that single invoice.

  The fact that selective facilities can be so transient means that often the pricing for single transactions can be higher than expected. I mentioned an example we had seen of a client wanting to discount a block of invoices to local authorities for just a couple of months, at which point they would be paid. When we looked for quotes, it worked out cheaper to fund all their invoices for a year (whole ledger), than just the block for 2 months (selective). There are still selective invoice finance companies in the market, although their volumes are thought to be small compared with the core providers that offer mainly whole ledger services.

  Demand For Finance

  The previous session included a presentation from Shiona Davies of BVA BDRC, who conduct the SME Finance Monitor each year. She mentioned that despite a reduction in the number of permanent non-borrowers, there still remained a reluctance to borrow amongst businesses. At present is is unknown if resolution of Brexit will impact this greatly, or if this general caution and self reliance is going to become the new norm amongst UK SMEs.

  With this as the background, the panel noted that according to recent UK Finance statistics, the number of member's clients had grown by only 1% over the last year, suggesting that the availability of online, platform based invoice financing had not lead to the significant expansion of client numbers that had been anticipated. Despite this the panel noted the proliferation of new entrants to the invoice financing sector and also felt that trade finance had a clear future based on the volumes that they were seeing.

  Valuing Receivables

  I was keen to point out that putting aside the pricing and profitability issues with selective invoice finance, the core skill of being able to value receivables should not be overlooked. It is this skill that allows receivables financiers (RF) to recover their lending, when traditional forms of lending cannot. This makes RF sustainable when the economy suffers a downturn, and allows funding of fast growth businesses (highly correlated with the use of receivables finance), where other assets do not support sufficient levels of traditional lending.

  Overall it was an interesting debate that confirmed that the auction/selective funding sector is no longer as it was due mainly to the unsustainable profitability issues, as described above.

  By Glenn Blackman