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Greg Bell, CEO, Skipton Business Finance
For many years, factoring has been a cornerstone of SME funding in the UK. By converting unpaid invoices into immediate working capital, it has enabled thousands of businesses to manage cashflow, pay suppliers and invest in growth. However, the invoice finance landscape is evolving, and recent years have seen several well-known providers step back from traditional factoring.
This shift is not a reflection of declining demand for working capital solutions. Quite the opposite. Instead, it reflects changing economics, risk appetites and perhaps (most importantly), changing expectations from borrowers themselves.
Traditional factoring involves the funder managing the sales ledger and collecting payments directly from client customers. For many SMEs, particularly in sectors such as recruitment or logistics, this model has historically worked well. However, the administrative complexity and operational cost of servicing smaller facilities has increased significantly in recent years. Regulatory expectations, compliance requirements and the need for more sophisticated technology platforms have all added to the cost of delivering the product.
At the same time, some lenders have reassessed their risk exposure to certain sectors or smaller ticket sizes. As margins have tightened and operational costs have risen, some providers have concluded that traditional factoring no longer fits their strategic focus.
But while the supply side has been changing, borrower expectations have also evolved.
Today's SMEs are more financially sophisticated and often want greater control over their customer relationships. Many business owners are reluctant to outsource credit control or introduce a third party into the payment process with their clients. As a result, confidential invoice discounting and other more flexible working capital solutions have become increasingly attractive.
Technology is also playing a major role in reshaping the market. Digital onboarding, automated ledger management and real-time reporting are raising expectations around speed, transparency and user experience. Businesses increasingly expect funding solutions that integrate seamlessly with their accounting systems and provide quick, reliable access to liquidity.
This is where brokers play an increasingly important role.
The decline of traditional factoring does not mean fewer options for SMEs. In fact, the opposite is true. The working capital market has broadened significantly in recent years, with a growing range of solutions including confidential invoice discounting, selective invoice finance, asset-based lending and hybrid funding structures.
For brokers, the opportunity lies in understanding these evolving solutions and matching them to the specific needs of each client. A business experiencing rapid growth, for example, may benefit from an asset-based lending facility that unlocks funding against multiple asset classes such as receivables, stock and plant and machinery. Others may simply require a straightforward invoice discounting facility that provides liquidity while allowing them to retain full control of their sales ledger.
Ultimately, the fundamentals remain the same: SMEs need reliable access to working capital in order to grow.
What is changing is how that capital is delivered.
By understanding the evolving shape of invoice finance and the wider range of working capital solutions now available, brokers can continue to play a vital role in helping businesses access the funding they need to succeed.