With over 22 years of experience working in the business finance sector, Simon Carter set up Touch Financial back in 2008. He has been able to quickly establish the brand as the largest Business Finance Intermediary in the UK, winning the Business Moneyfacts best ‘Asset Based Finance Broker’ award consecutively for the previous three years. Here, Simon expresses his opinion and predictions on the future of the Single Invoice Finance market in the UK.
Single invoice finance works by advancing a percentage of the value of an invoice (typically around 80%) which is on credit terms to another business. This effectively brings the wait for payment down from 30, 45 or even up to 120 days to as little as 24 hours after the invoice has been created.
Simon Carter on the Single Invoice Finance Market
At Touch Financial, we are always looking for and watch with interest as new lenders enter the funding market for small to medium businesses. In the last few years for example, the presence of single invoice and peer-to-peer lenders have certainly become more widespread as the demand from businesses for short term cash increases.
There are one or two very well established single (or spot) invoice factoring funders such as Interface Financial. As these funders specialise in single invoice finance, they are becoming increasingly aware of the risks and rewards in choosing the right invoices to fund against. Equally, there are several small privately backed businesses (usually by high net worth individuals) looking to deploy funds for individual investors. This can make a better return on investments than would otherwise be received in volatile markets.
From an ex-underwriter’s point of view this immature market probably still has a way to go before there is much in the way of crystallisation of losses (for example through fraud). My feelings are that this might restrict the appetite of private investors funding these businesses. At Touch Financial, we have been able to generate significant interest from customers in this product but the conversion rates to date have been exceptionally low, due at least in part to restrictive underwriting once the client is introduced to the market.
I think it would be fair to speculate that this will only become more restrictive if losses start to crawl out of the woodwork. That said, the concept is a sound one but perhaps is one better adopted by the main invoice finance providers as an additional product. Given that they already have the systems to accommodate the risk associated with this kind of lend, they should be well placed to better handle the risk.
I will continue to watch with interest how this product develops. For now, I would suggest that business owners who are thinking about single invoice finance do not discount the mainstream invoice finance market as there are many solutions already available which compare favourably. There are also, of course, other funding methods and government-led incentives which are available to SMEs seeking funding.