The latest Invoice Finance / Asset Based Lending (IF/ABL) data from UK Finance has recently been released for the quarter ended March 2022. The most significant finding is that total ABL advances continue to show strong signs of recovery back to pre-pandemic levels despite the additional COVID-19-related restrictions in late Q4 of 2021 and its associated impact on economic activity.
Key findings from our latest analysis include:
- Total ABL advances at the end of March 2022 were at 90% of pre-pandemic advance levels (£21.1 billion at March 2020 versus £19.0 billion at March 2022). Total ABL advances operated at levels previously experienced in 2016 (quarterly average £19.6 billion).
- Total ABL advances grew by £1.6 billion (9.2%) between the quarter ended December 2021 (£17.4 billion) and March 2022 (£19.0 billion). The second-highest quarterly growth in total ABL advances since March 2020.
- Total clients’ sales volumes for the quarter ended March 2022 (£75.4 billion) are almost at record levels (highest recorded total clients’ sales volumes was £76.1 billion in the quarter ended December 2018).
- Total ABL advances continue to grow mainly due to advances to ABL clients at the larger end of the market – the average advance to clients with turnover in excess of £100 million was £13.6 million at March 2022 (compared with £12.8 million at 31 December 2021).
- ABL client numbers with turnover in excess of £25 million continue to grow quarter-on-quarter and are higher than pre-pandemic levels (1,976 clients at March 2020 versus 2,393 clients at March 2022).
Our analysis below shows some key metrics in more detail from the latest quarterly UK Finance IF/ABL data between December 2019 (pre-pandemic) and March 2022.
The term ‘ABL’ within the data set below and supporting commentary represents the sum of UK Finance’s IF and ABL reported balances at the period ends. UK Finance define IF as advances against debt, plus advances against debt and other assets. ABL is defined as advances against assets other than debt, including stock, plant and machinery and property. It also includes advances against debt where this is provided as a component of a wider ABL facility. Further analysis of IF and ABL balances at the period ends are available from UK Finance.
Conclusion and Outlook for ABL
Higher utilisation of ABL facilities by clients in Q1 of 2022 is likely to have been driven by a combination of factors including inflationary pressures, continued supply chain disruption, repayment of trade creditors and HMRC arrears carried forward from the pandemic, the partial return of creditor enforcement action and a gradual increase in average discounting debtor days in the ABL industry.
In addition, a large number of clients who either replaced their ABL facilities in full or reduced their utilisation on ABL facilities via alternative sources of finance under the Coronavirus Business Interruption Loan Scheme facility (or Coronavirus Large Business Interruption Loan Scheme) are having to repay the interest and capital on those facilities.
These factors have culminated in an increase in the demand for liquidity, which has led to an increase in total ABL advances from ABL clients.
The latest quarterly results will only partially reflect the inflationary pressures, which have recently surged in Q2 of 2022 (particularly from the energy providers in April 2022).
With the continued economic headwinds and continued unwinding of various COVID-19-related support measures, there is likely to be greater demand for liquidity from available working capital resources in the future.
We therefore expect continued quarterly growth in total ABL advances in Q2 of 2022 to pre-pandemic levels.
BDO’s ABL Debt Advisory Services
Our ABL Debt Advisory team specialises in advising clients in these situations. We have extensive relationships with the ABL community, which means we can maximise all potential funding options. We apply our knowledge, experience, and expertise to match the requirements of the client to the facility.
- We listen to the client and understand the needs of the business
- We can review clients existing facilities to determine if they are optimising their working capital facilities and benchmark to market
- We advise clients new to ABL or those refinancing existing facilities
- We provide clients with advice for all types of ABL opportunities; Refinance or Recapitalisations; Growth capital or Bridging debt; M&A or MBO; Full/Partial shareholder exits and Off-Balance Sheet receivables purchase
- Advice across the whole asset base (debtors, stock, plant and property) with access to whole of market
With over 100 different lenders in the market, securing the best possible outcome for any business can be a daunting and time-consuming process. Our ABL Debt Advisory team supports management teams throughout the refinancing/sourcing new facility process.
If you would like to discuss the analysis or to find out how Asset Based Lending can support your business through challenges and opportunities, speak to Martha Thompson, Drew Johnson, or Chris Skey who will be happy to assist.