- 20 Nov
Are Revolving Credit Lines More Popular Than Single Invoice Finance?
Which is more popular single invoice finance (SIF) or revolving credit lines? Our experience, as detailed below, is that the majority want revolving credit, with a more modest niche demand for SIF.
Definition Of Single Invoice Finance & Revolving Credit Lines
It's probably best to start with brief definitions of what these terms mean (see our free receivables financing guide for more information). Single invoice finance (SIF - often called selective invoice finance) is where the supplier using the facility can pick and choose invoices to submit to the invoice finance company for funding (and a credit control service in the case of spot factoring). There are not usually any minimum turnover, or minimum fees imposed. Termination can be at any time, by simply not using the service again.
Revolving credit lines, in the context of receivables financing, are often called whole turnover facilities, and are where the supplier (the client of the finance company) submits all their invoices to the invoice finance company for funding (and credit control services in the case of factoring). There is normally a minimum monthly fee for this type of facility, although it is normally set at a level that the company will easily exceed. Termination normally requires a period of notice, in some cases it can be very short e.g. a month. In other cases it can be several months notice of termination.
The fees to fund any one invoice under a single invoice arrangement tend to be proportionately higher than they would be for that same invoice under a revolving facility. With revolving facilities the customer tends to get a discount on the fees, as they are submitting all their invoices (a kind of bulk discount). However, users can carefully control the costs with SIF by picking and choosing the transactions to include.
SIF has only become available in the last few years, for many years all receivables financing facilities were whole turnover.
Some time ago we conducted some research where we asked a sample of randomly selected SMEs whether they thought businesses would prefer SIF, or invoice finance that included all their invoices. We found that 37% thought that businesses would prefer selective facilities, 63% thought that whole turnover facilities would be preferred. This suggested that there was a market for the selective facilities that were emerging at that time.
Since then, we have seen a number of new invoice finance providers entering the market, many of them offering only SIF. Sometimes, being brokers, we have been contacted by almost one new SIF provider a week - seeking new introductions. However, many of these providers are small, with only a few clients - many sit outside of UK Finance, the main UK trade body for the receivables financing sector. The majority of the c. 40,000 clients attributed to members of UK Finance (formerly the ABFA) are thought to be whole turnover users. The turnover transacted by clients of UK Finance members was c. £286 billion, in the year to the end of Q2 2018.
The largest of the UK SIF providers, outside of UK Finance, is thought to be MarketInvoice (who are not currently UK Finance members, but are instead members of the Peer To Peer Finance Association). They originally started out offering only SIF to clients when they launched in 2011. In February 2017 they diversified to offer the provision of whole turnover facilities, and towards the end of 2017, business loans. They have funded almost £3 billion of client invoices (figure includes value of loans) since inception, which whilst a huge achievement, is dwarfed by the overall volumes transacted by the UK Finance members.
Our Experience At FundInvoice
At FundInvoice, we have arranged many SIF facilities for customers, but whole turnover remains the lion's share of the enquiries that we see. We offer the full spectrum of receivables finance facilities, with no bias as to which facilities are offered. In 2018 to date (20/11) we found that only 16.9% of the enquiries that we dealt with were for SIF (with some element of transaction selectivity required), the remaining 83.1%% wanted a whole turnover style facility encompassing all transactions.
So the demand that we have seen is largely for revolving credit facilities rather than SIF. Despite this, there remains a clear niche requirement for SIF.