Invoice financing spurs growth

Buying and selling debts and IOUs continues a growth segment of the state’s financial services sector.

As recently as the early 1990s, Western Australia’s factoring and discounting activities made up only a relatively minor segment of this sector.

Eighteen months ago – during the 2003 September/December quarter – the factoring and invoice discounting were already knocking on the door to annually become a two billion dollar segment of Western Australian financial services.

Currently their turnover is running at about $700 million a quarter, so that factoring and discounting are now well on the way to becoming a $3 billion sector annually.

According to statistics just released by the Institute of Factors and Discounters (IFD), turnover of Western Australia’s factoring and discounting sector stood at $697.9 million during the fourth quarter of 2004, compared to $451.1 million for the 2003 corresponding quarter.

The total Australia-wide factoring and discounting turnover for last year’s fourth quarter was $9.1 billion, an increase of $2.2 billion (31 per cent) over the previous year’s corresponding quarter.

Factoring turnover nationwide was $998.3 million, up five per cent, while discounting was $8.1 billion, up 35 per cent.

Western Australia’s share of this turnover currently stands at eight per cent of the national market.

Despite the state experiencing a solid boost over 2004 – from $451 million to $697 million – this is still well below levels being registered by east coast centres.

Victoria accounted for 36 per cent of the national market; New South Wales and the ACT 32 per cent; and Queensland a solid 17 per cent, meaning the three command a huge 85 per cent national stake overall.

South Australia and the Northern Territory together came in just below WA, at seven per cent.

With WA representing about 11 per cent of the national population, clearly there’s still room for further growth.

Moreover, Peter Langham, managing director of West Perth-based invoicing finance company, Benchmark Debtor Finance, predicts further growth both nationally and for WA.

 “In the UK, invoice financing is now a 132 billion pound industry dominated by small to medium enterprises and representing around 10 per cent of gross domestic product,” Mr Langham said.

“The difference between Australia and the UK is that invoice financing here represents only five per cent of GDP and still growing.

 “There’s certainly a lot of room for growth.”

Both factoring and invoice discounting involve the sale of an invoice for an immediate cash payment at a discount.

With the latter, however, the invoice originator maintains control of its own debtors’ ledger while generally, the finance provider assumes full control of debts.

IFD has 10 members who participate in the institute’s quarterly surveys.

They are: AGC, Cash Resources, Commonwealth Factors, Heller Financial Services, National Cash Flow Services, ORIX Factors, Scottish Pacific Business Finance, St George Business Finance, Paynow, and Key Factors.

Clearly, the debtor finance sector is showing healthy growth.

But, by its own admission, it has been slow to sell its message. Few sectors across Australasia can boast annual growth rates of 30 per cent over more than five years.

The latest figures available through the IFD are for the final quarter of calendar year 2004, which, Mr Langham acknowledges need to be timelier.

“We’re working to get our member firms to move much more quickly,” he said.

“After all, when you’ve got a really positive message, why hold it back?”

 With most major banks now contributing to the industry’s phenomenal growth there is likely to be an increasing focus on debtor finance, particularly by accountants looking to get the best deal for their clients in the small and medium enterprise sector.

 Mr Langham said some of the growth in discounting had been from banks moving existing customers towards debtor finance instruments, enabling them to offer deals they would not normally consider.