THE SEVEN banks and non-bank lenders that provide 'invoice finance' in Ireland expect demand to grow as firms reopen after virus lockdowns - and face a long list of unpaid invoices in their sales ledgers.
The Irish Asset and Invoice Finance Association (IAIFA) published its 2019 results today. These show that 1,600 small and medium-sized enterprises used €28.6bn in invoice and other asset-based financing last year.
At any given moment, those firms have nearly €1.5bn drawn down from their invoice-secured credit lines, with the potential for up to €2.7bn in such borrowing approved.
Unlike normal loan arrangements, such invoice-based finance typically amounts to a revolving credit facility in which the lender advances funds to the firm based on the size of their debtor books and collects that income, plus interest, as invoices are paid into a lender-controlled account.
IAIFA chairman David Avery, who is also head of commercial finance at AIB, said invoice financing is growing as an option for SMEs to use in place of, or alongside, their usual credit facilities. It can be quicker to access than traditional loans and cheaper than overdrafts, offering interest rates of between 3pc and 6pc.
"SMEs are waiting longer to be paid by their clients and they've got to manage payments to their creditors. So this type of finance could be viewed as a critical tool for them to navigate their way through the crisis," he said.
"Instead of waiting 60 to 90 days to be paid, they're getting access to credit straight away. We lend against an asset, the sales ledger, and that's the security taken."
The group's members include the commercial lending units of three pillar banks - AIB, Bank of Ireland and Ulster Bank - as well as Bibby Financial Services, Capitalflow, Close Brothers and Grenke Finance.
Pillar banks currently drive about four-fifths of business, particularly among larger SMEs such as manufacturers and agri-food firms.