Receivables-based finance is growing in Europe, with firms exploring non-traditional products such as securitisation and asset based lending, says a new research report from Demica. 37% of European firms have monetised their receivables in the past year to help address the continued scarcity of traditional lines of credit, 42% report that their use of receivables based finance has increased over previous years and 43% are planning to make more use of receivables-based finance over the next year. 40% of firms are actively considering techniques such as securitisation, asset based lending and supply chain finance. This is likely to be a longer-term change and not just a short-term tactic, as 59% of firms say that "banking relationships have been irrevocably alteredâ during the last two years, with customers demanding a wider and more imaginative range of finance. 31% of companies in the UK, France and Germany have been offered securitisation services for the first time by their bank in the last 24 months.
The latest research from London-based working capital solutions provider Demica shows that firms are increasingly seeking to augment their use of trade receivables finance. In order to further diversify their sources of working capital, many are considering non traditional products such as securitisation and asset backed lending. The report, which surveyed over 1,500 firms with over 50 employees in the UK, France and Germany, reveals that receivables-based finance is now a mainstream technique in Europe, with almost half of firms planning to raise finance on this category over the next two years.
Some 37% of European companies (UK 43%, France 39%, Germany 30%) reported that they had already monetised their receivables or payables in order to maximise the current scarcity of liquidity over the last 12 months. Evidently, corporate financial managers are overcoming their uncertainties and discovering invoice-based finance models that can provide and free much-needed working capital. Furthermore, finance raised on such asset categories is set to grow considerably over the next 24 months. Just under half of European firms (43%) said they planned to increase the levels of finance raised against non-traditional sources â with invoice-based finance specifically in mind. The U.K. (41%) and Germany (37%) showed much interest in developing such techniques, suggesting that they will soon match the already elevated levels of uptake in France (49%).
Since the early 2000s, there has been a rising awareness of trade receivables as a viable asset category and the market for receivables-based finance now appears to be entering maturity, with firms making more significant usage of the category than in previous years. Over the last 12 months, some 42% of European companies say they have increased their use of finance raised against the security of their trade receivables. French firms are significantly ahead of their UK and German counterparts, with 51% (as opposed to 42% and 33% respectively) already implementing such techniques. These firms are clearly responding to pressures created by the rise in cost of business credit and the challenges currently being experienced in the Euro zone.
Furthermore, it appears that these tools are creating a longer-term change in business attitudes to finance and are no longer considered just a short-term tactic. The lasting effect on European business is evident with 59% stating that banking relationships have irrevocably changed over the last two years and customers are now demanding a wider range of financing tools. This was especially apparent in the UK (61%) and France (65%), (with a lower, but still considerable 52% in Germany) demonstrating that trade receivables based finance is taking on a distinct persona as a range of products that companies perceive they need, and indeed an area that banks are keen to develop to meet those needs. The majority of respondents also call for a more imaginative range of financing products. To paint a picture of the types of solution currently being considered, 40% of European firms (UK 42%, FR 46%, DE 32%) report they are actively looking into non-traditional products such as securitisation, asset based lending factoring and supply chain finance.
The difficulties banks have been experiencing have further helped to shift corporate focus to raising finance secured on robust asset categories, including invoice-based finance and securitisation. Banks are aware of this and are keen to help ease the pressures on business as economic recovery will be intrinsic to their future performance and ability to lend. Banks are also under considerable pressure from governments and the public to demonstrate that they are proactively supporting business through the recession and encouraging growth. The findings of Demicaâs special report reflect this, with 35% of European firms (UK 36%, FR 40%, DE 28%) seeing their banks start to offer invoice-based finance services in the last two years and 31% of European respondents (UK 30%, FR 40%, DE 22%) being offered securitisation services for the first time over the last 24 months .
Demica CEO Phillip Kerle comments: âScarcity of traditional credit has become a real problem over the last two years. If European firms are to raise finance successfully in the future, they would do well to look for liquidity hidden in their balance sheets. Trade receivables based finance is leading the way thanks to the high quality security of invoice debt â allowing for significantly improved access to credit.
âBanks, companies and their advisors are increasingly taking a long-term approach to freeing capital â examining how alternative commercial finance products can improve business prospects once the other side of the recession. As financing tools have become integral to freeing up working capital â trade receivables-based finance and securitization tools are already proving popular â and are expected to play a much greater part in future business strategies. Specialist technology-based services are available that automate these processes and provide regular monitoring and reporting of the asset base. We can expect take-up of such services to soar over the next year. â
Research Key Findings
o Receivables-based finance is a mainstream technique, with 37% of European firms having monetised their receivables in the past year to help address the continued scarcity of traditional lines of credit.
o 42% report that their use of receivables based finance has increased over previous years and 43% are planning to make more use of receivables-based finance over the next year.
o This is likely to be a longer-term change and not just a short-term tactic, as 59% of firms say that "banking relationships have been irrevocably alteredâ during the last two years, with customers demanding a wider and more imaginative range of finance.
o In order to diversify their sources of finance, 40% of firms are in the process of considering non-traditional products such as securitisation, asset based lending, factoring and supply chain finance.
o The banking industry is actively supporting customer demand in this respect. 35% of firms have seen their banks start to offer invoice-based finance services in the last two years, with 31% being offered securitisation services for the first time over the last 24 months.