Invoice finance is becoming an increasingly significant source of working capital funding, according to new research from Demica, as availability and lending conditions for relationship credit remain tight in Europe. It is believed to be the first time that the aggregated invoice finance market (includes trade receivables securitisation, factoring and invoice discounting, supply chain finance, and a range of other invoice-based finance techniques) has been analysed as a whole.
Demica’s new research reveals that the aggregated European invoice finance market was estimated to be €1090 billion (£892 billion) in 2011, compared to €991 billion (£811 billion) in 2010 and €844 billion (£690 billion) in 2009. This constitutes a compound annual growth rate of over 10%.
The invoice finance market has therefore become an economically significant source of business finance. It is equivalent to some 8% of EU 27 total GDP, represents more than 8% of EU 27 total corporate lending, and is approximately five times the size of the European leasing market in 2011.
The research aggregated a wide range of third party data, and interviewed respondents from Europe’s top fifty banks, as well as specialist invoice finance providers and invoice finance trade associations. Respondents consistently predicted a sustained growth trend for the total invoice finance market as international and national regulators increase banks’ capital adequacy requirements. Banks are vigorously exploring more efficient ways of providing funding to customers in the light of permanently increased capital adequacy regulation. From the customers’ perspective, invoice finance offers low- or no-rated organisations affordable funding as credit conditions are based on the risk of the outstanding pool of debt. There is a mutual consensus that invoice-based finance is being increasingly employed by banks and corporates as a growing alternative to traditional credit.
Phillip Kerle, Chief Executive Officer of Demica, comments, “As tight conditions persist for traditional lending, invoice finance – in its various forms - has stepped up to the plate to fill the funding gap. We believe that this is the first time that the invoice finance market has been viewed as a whole, and our report has demonstrated its economic significance in Europe, playing a vital role in funding economic recovery at a time when bank credit continues to undergo a substantial “squeeze”. In a world of suppressed liquidity, corporate health hinges on the availability of working capital. This report demonstrates the level of importance now afforded by banks and corporates alike to the various forms of invoice finance technique.”
A wide variety of public and private sources were consulted and analysed to ‘size’ the European invoice finance market. The geography of this study was strictly limited to the EU 27. Because some invoice-based transactions will remain private, and therefore cannot be incorporated into any analysis, the findings of this report should be taken as a conservative model of the market’s size.
Primary research used to construct this report was conducted with three main groups:-
• Selected European top 50 banks
• European specialist invoice finance providers
• Various European invoice finance trade associations
Third party sources consulted include:-
• Factors Chain International
• BCR Factorscan
• Standard & Poor’s
• Fitch Ratings
• GE Capital
• Bank of England
• European Central Bank
• European government statistical offices
• World Bank
• International Monetary Fund
• Breedon Report
• European Banking Federation
• The Economist