What is clear from our findings is that there is a widespread willingness to work with existing or well-established providers. In part, this may have been due to a cautious mindset among businesses during the height of the pandemic, but could those mindsets change as we emerge from Covid-19? If so, what can established lenders do to stay front of mind with borrowers?
A Mainstream Solution?
Our report details some very good news for all lenders in the receivables finance sector. We surveyed roughly 100 businesses in each of the following key markets – the UK, USA, Germany, France and the Netherlands. The findings revealed that receivables finance is now a mainstream working capital option, with almost eight out of ten respondents (78%) aware of receivables finance and almost three quarters (74%) having used it.
More often than not, these customers have had a positive experience of using receivables finance too, and they have good reasons for picking this particular solution. Six in every ten (61%) borrowers chose receivables finance because it offered the best rate, according to our research, while 44% said it offered fast access to funding.
Those are two benefits which are critically important for businesses. When we asked respondents which of eight factors would be most important in guiding choice of a working capital facility, a low rate was cited as the most important feature by one in five borrowers (22%), whilst 17% focused on the speed at which they receive funds.
Not Always Plain Sailing
However, not every borrower has considered receivables finance or had a positive experience with using this solution. We asked businesses about the biggest pain point they experienced during onboarding with a new lender. This is what we found:
- 27% said the credit process was the biggest challenge
- 25% cited lender due diligence as a pain point
- 20% found completing legal documentation frustrating
- 17% thought completing Know Your Customer or anti-money laundering processes was the biggest issue
For borrowers who hadn’t used receivables finance, the most common reason given was that an existing lender did not offer it. Others thought the receivables finance process was too complex (30%) or that funding took too long to arrive (36%).
This suggests that although awareness has improved, there is still a need to increase knowledge and understanding of these solutions; in particular, of the quality and speed of service, value for money and flexibility they can offer.
Without solving these issues, lenders could be leaving themselves open to losing market share, and there is every reason to believe that banks and other established lenders could start to lose ground against the competition. Our findings show that almost three-quarters (73%) of business borrowers would consider an alternative lender for their next working capital solution, including around eight out of ten respondents in Germany, the US and the UK.
Finding A Way Forward
How can lenders respond to these pain points and tackle some of the remaining barriers to business borrowers choosing a receivables finance solution?
Technology and data are key, and our research shows that there is a growing willingness amongst borrowers to open up access to data in the name of faster, more efficient processes. More than three-quarters (77%) of borrowers would share access to their financial data if it enabled lenders to make faster decisions, for example.
Lenders need to use technology effectively and automate due diligence processes (such as data extraction from accounting software), to ensure that customers have a positive experience and decisions are accelerated. Borrowers are now more likely to be tech-savvy, and so are more open to using technologies for data transfer and other processes.
“[A lender] needs to have cutting edge technologies, to ensure those pain points in the solution are not going to be there and it’s easy for the client to submit as much information digitally as possible. So, we need to continue to improve our technology”, says John De Pledge, Business Head at Valley National Business Capital, a division of a US-based bank.
Technology isn’t the only solution though. Lenders must continue to spread awareness about receivables finance solutions among businesses of all kinds.
“As a commercial finance industry we need to make sure that people have an informed understanding of the full range of products – when they can work and also when they might not be appropriate,” says UK Finance’s Matthew Davies.