Businesses turning away from debtor finance

Turnover in the debtor finance market fell in 2014 and client numbers continued a decline that that been going on since the financial crisis.

The Debtor and Invoice Finance Association reported that sector turnover in the 12 months to December was A$62.7 billion, compared with turnover of $63.3 billion in 2013.

Invoice discounting, where the seller of the trade debts retains the accounting and debt collection functions, accounted for the bulk of the turnover. Invoice discounting turnover in 2014 was $57.5 billion - unchanged from the previous year.

Factoring (where the finance company takes over the accounting and debt collection) accounted for $5.1 billion of turnover, down from $5.7 billion in 2013.

Client numbers fell 1.4 per cent year on year to 4441. Numbers are down 25 per cent since the peak of 5921 at the end of 2007.

Wholesale trade and manufacturing are the core markets for debtor finance, accounting for 57 per cent of receivables last year.

The traditional market for debtor finance - small but fast growing businesses that do not have sufficient equity or assets in their business to increase their bank funding - reduced debt during the financial crisis and continue to shy away from borrowing.

The industry has also been hit by the withdrawal of a couple of the big banks from the market. Industry sources say some of the specialist providers are doing well.