How Invoice Finance Has Changed - Future Predictions
This is the second in a series of articles about the changes that have occured within factoring and invoice discounting over recent years and our predictions about what we expect to change in the future. This articles looks at invoice finance products, how they have developed and what we expect to see in the future.
Invoice Finance Products
Back in the 1980's factoring (funding with collections) was the the leading product and invoice discounting (funding without collections) had only just started to become popular. At that time the discounters had quite stringent criteria as to who would qualify for invoice discounting and criteria often included large net worths and historic profitability. This situation has changed dramatically over the last three decades, invoice discounting has come into its own and client numbers using invoice discounting are only 12% less than those using factoring.
Until the advent of the recent credit crunch Confidential Invoice Discounting was freely available to businesses that had little track record or net worth althought this has become somewhat harder to find in recent times.
Technology
There have also been other advances in technology that have improved the operation of both factoring and invoice discounting. The advent of "electronic delivery", where the client can log into the finance companies system, view their ledger details and make requests emerged in the early 1990's and laterly, this has developed to the point that some discounters software packages actually integrate with the client's accounting software to make the transmission of invoice details seemless and work free.
Invoice Finance Product Derivatives
More recently other product derivatives have been launched. Confidential Factoring gives the client the benefit of a collections service but it is all undertaken in the name of the client company, hence making the service "Confidential". Similarly, finance companies have sought new ways to secure their lending in order to provide ever higher initial payment percentages. To this end, stock finance, top up loans and other forms of overpayments have become more common.
Our Predictions for the Future
As for what the future holds, our predictions would be that the swing towards invoice discounting, away from factoring will continue as more and more businesses leverage the benefits of the latest accounting software to handle their own collections. Email based chasing has already become common place. We suspect that there will be ever greater degress of integration between the client's accounting software and the finance company in order to justify higher funding percentages, this is likely to be combined with products that move towards a more "asset based lending" approach i.e. all the client's assets are taken into the equation, using a complex funding formula, to calculate a higher level of funding that can be released across a broader spectrum of assets which are used as security.
