Invoice discounting provides a number of advantages over traditional bank lending.
New York, NY (PRWEB) May 25, 2014
Constrained access to credit and a desire for enhanced flexibility in cash flow solutions have been the primary drivers of growth for the Invoice Discounting industry over the five years to 2014. Industry operators primarily provide short-term financing for businesses with the end goal of improving their access to working capital. Downstream clients borrow a percentage of the value of their sales ledgers, effectively using their unpaid sales as collateral for financing. The majority of these clients enter into these agreements as a means to improve the availability of nonbank cash flow finance. Moreover, these clients have increasingly turned to industry operators in order to maintain control over their sales ledgers and to keep the involvement of cash flow financiers confidential. As a result of these trends, Invoice Discounting industry revenue is anticipated to increase at an annualized rate of 7.7% over the five-year period, reaching $2.7 billion in 2014; this growth includes a 6.0% rise in revenue expected in 2014 alone.
According to IBISWorld Industry Analyst Stephen Hoopes, “Invoice discounting provides a number of advantages over traditional bank lending.” Industry offerings tend to improve working capital access for clients at a faster rate, in addition to providing enhanced flexibility with respect to the ultimate use of borrowed funds. Moreover, invoice discounting has continued to outpace other forms of accounts receivable financing in recent years, including full factoring. According to the latest available survey data from Demica, a working capital solutions firm, the most important reasons for the industry's comparative success include invoice discounting's lower cost and the saturated nature of the full factoring market. Yet, a number of barriers exist to the broad-based adoption of invoice discounting, including the lack of awareness among downstream clients and the perceived complexity of industry services.
While the industry's profitability is anticipated to fall slightly compared with 2014 levels, the average profit margin is forecast to remain well above its 2009 figure over the five years to 2019. ”However, criticism of the practices of some accounts receivable financing providers has kept pace with increasing revenue in recent years,” says Hoopes. Moreover, industry operators will have to contend with the common viewpoint among downstream clients that invoice discounting is only a short-term fix, rather than a long-term solution.
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IBISWorld industry Report Key Topics
The Invoice Discounting industry provides short-term financing in exchange of business invoices or accounts receivables. Operators mainly generate revenue through factors fees or through the difference between the price paid for the invoice and the money received from debtors.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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