The impact of the pandemic in the real economy

When it was clear the UK was about to enter a period of lockdown at the end of March, UK Finance and a number of our Invoice Finance and Asset Based Lending (IF/ABL) members began industry-level tracking a number of key economic indicators, particularly in relation to client invoicing volumes and value, debtor payments and the usage of available finance.

IF/ABL providers, which specialise in extending funding to businesses against their outstanding invoices and other assets, have a largely unique level of insight into how the pandemic is impacting businesses in the real economy in almost real-time. The data UK Finance collates covers around 20,000 IF/ABL client businesses - approximately half of the total supported by IF/ABL members - and provides deep weekly insight into the economic activity of businesses that account for up to five percent of UK GDP.

With the industry supporting businesses in many sectors of the UK economy, the trends emerging from this sub-set of businesses should be reasonably indicative of what is happening across the B2B economy more generally. To date, while some trends have been in line with expectations for lockdown, others have been rather surprising.

Sales volumes

Unsurprisingly, the level of invoicing from those 20,000 businesses fell by around a third at the start of April. It remained at this level throughout the strictest lockdown conditions during April and May, with a slight uptick noted in June as some restrictions were lifted.

By the end of June, a clearer picture was possible through comparison of Q2 to Q1 figures, which confirmed that there had been a drop in client sales of between 28 per cent to 36 per cent.  While too early to be confident, July looks more promising, with client turnover starting to pick up.

Payment trends

As lockdown began, the flow of payment of invoices was widely expected to come to a standstill, with offices closed and businesses unable to pay. 

Initially following lockdown the survey highlighted a steady increase in average debtor payment days. In the first eight weeks, the average went from 55 days to 63 days. However, debtor payments remained relatively steady and recent figures indicate high volumes of receipts as payments caught up - as at mid-July, average payment days were only one day slower than the pre-lockdown average. While behaviour varies between businesses and sectors, the overall picture seems to indicate a welcome focus on the importance of businesses supporting their supply chains in a time of crisis.

Usage of finance

As part of this data collection exercise, UK Finance tracked intensity of usage of available funds by the businesses in the sample.  In the context of a crisis where much of the public discourse has been around the availability of finance, the results were surprising; at the end of March, IFABL clients were using 70 per cent of their available funds to support their cashflow, three months later this had dropped to just 45 per cent. In real terms, this indicated the ?average? IF/ABL client had headroom of over £250k within existing facilities.

Clearly access to BBLs, CBILs and other unprecedented government-backed lending schemes has played a significant part in reducing requirements from existing commercial facilities as businesses have instead accessed government-backed low, or no-cost finance and other support schemes to subsidise their working capital requirements. The extent to which this may have permanently changed expectations around the accessibility and cost of finance - and government and the financial service's industry's ?responsibility? to provide it - will be the key questions for the months to come, alongside the challenges of unwinding the unprecedented amount of government-backed indebtedness across the UK economy.