The UK's leading online invoice financier has produced some telling research into the excessive cost structure of the traditional invoice finance product.
The invoice finance market is not currently regulated, meaning that its leading providers are not subject to uniform standards in terms of communicating price. MarketInvoice has itself had to overcome this lack of transparency in order to scrutinize the services of the incumbent banks. The platform compared the revenues that the banks’ invoice finance divisions reported to Companies House with the banks’ self-reported advanced volumes within the invoice finance space – offering an insight into the average cost-per-round of the banks’ invoice finance product. It is reportedly the first time that this data has been exhumed.
MarketInvoice reveals that the nation’s banking sector has been fleecing businesses for £758m each year for invoice financing – an overcharge of £425m. That markup is reportedly the work of a complex maze of hidden fees. 50,000 businesses in the UK borrow £20bn every 3 months via invoice finance – predominantly from the leading banks (RBS Invoice Finance, Lloyds Invoice Finance and HSBC Invoice Finance). It’s the largest invoice financing market in the world.
MarketInvoice suggests that 26,000 of the UK firms using invoice finance from the leading banks are ending up on the receiving end of up to 35 different hidden fees. Based on a MarketInvoice survey of 1,000 UK business owners, two-thirds of businesses do not trust their bank not to overcharge them.
But how do MarketInvoice's services stack up in relation to this backdrop?
The platform’s research suggests that the banks charge their customers 6.4p for every £1 advanced. MarketInvoice by contrast charges 2.8p for every £1. That equals out to an average saving of £16,000 per year for MarketInvoice customers – a collective saving to date of over £10m.
“Thousands of UK businesses are being over-charged for short-term finance. This is costing thousands of businesses £16k per year on average and hundreds of millions in total. Businesses are afforded very little protection from hidden fees and long contracts because invoice finance is not regulated, as a result the market is plagued by bad practice. For now, the onus is on businesses to get free of their bank and explore alternatives."
“At MarketInvoice we represent a way out - we’re helping businesses break-up with their bank and avoid this kind of over-charging. Since launch in 2011 we’ve saved UK businesses over £10million and will do more than that again this year alone. We have no hidden fees whatsoever and companies can leave with no notice.”
The picture painted by MarketInvoice’s research has been in part corroborated by the actions of a group of individuals that are operatingunder the name RABF, who recently kicked off a campaign to “stop the abuse that is being carried out daily by a significant number of factoring companies at the expense of their clients”. The group is calling for a robust regulatory framework to be applied to the factoring industry.
Disruption thrives best in the wake of bad practice. MarketInvoice's research hammers home the need for an alternative.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.