The three main drivers changing the working capital finance market

Technology is already shaking up the way working capital finance providers think about their services. In this paper we take a look at the three key developments about to shape the industry’s future.

Firstly, we look at why a focus on cost savings is no longer enough for companies. Secondly, we conclude that more of a focus on service and value will bring new ideas into the industry. Finally, we discuss why there will be a shift towards more holistic working capital finance solutions. Overall, these things lead us to argue that a shift in focus towards more value-based (rather than cost-based) service propositions provides a big opportunity for working capital finance providers.


Up until now, the provision of working capital finance has been predominantly focused on providing funding to businesses at the lowest possible cost. But the way we use online and mobile technology in our personal lives is the precursor to a big shift in the way services will be provided in the future. That’s because today, we attach equal importance to creative value in our personal use of software applications, rather than simply relying on price to dictate our purchase decisions. You only need to think about the take up on paid streaming devices such as Spotify. The music website has seen the number of its paying subscribers double over the last year (to 20 million) despite the fact that users can still access a slightly reduced service for free. Yet the corporate sphere in general, where the focus has largely been on cost savings, has some catching up to do. There has been a clear disparity between the B2C and B2B markets, as solutions in the latter generally feel quite clunky and less focused around user experience.

This corporate focus on cost savings won’t suffice for much longer though. That’s because our personal experience of smooth, adaptable technology is quickly shaping our expectations at work. Agile, more intuitive technology solutions are about to become part of our corporate everyday – especially as a younger, more tech-savvy generation comes through into the workforce. Therefore, an increased demand for flexible technology – or software which has the ability to adapt to different circumstances – will facilitate easier entry into new markets and services at a fraction of the cost. And considering that technology has little respect for borders, this flexibility will allow providers to adapt to different geographic markets, as well as different industries.

In this context the focus of provider’s on meeting the expected service levels, will drive creative technological innovation. And this will open up new ways to provide working capital finance solutions to businesses.


“An increased demand for flexible technology – or software which has the ability to adapt to different circumstances – will facilitate easier entry into new markets and services at a fraction of the cost.”

With this focus on value driving technological innovation in the industry, the next question is where will new opportunities for growth come from? Historically, it has been easy to assume that the precedents set in more mature working capital finance markets (like Western Europe) drive the development of more embryonic markets. But on closer inspection, the reverse is just as true. Some of the emerging markets are in fact exporting crucial lessons that, combined with flexible technology, will drive innovation. Many less-mature markets, such as those in Central and Eastern Europe for example, are not burdened by historical baggage. Working capital finance providers are consequently able to leapfrog the issues that more developed market providers have, such as the costs of keeping tired, legacy systems in operation. This makes these markets more nimble as the money that would otherwise be spent on band-aiding information technology issues can be put to better use. We certainly anticipate activities in these emerging markets to shape innovation in the field.

One area of opportunity is where certain markets have avoided providing working capital finance services to certain industries. This is often based on either lack of understanding of an industry, an inability to be flexible, or because developing a solution has proved too costly. For example, UK working capital finance providers have traditionally steered clear of the construction industry because of its numerous variables and unknowns. Yet in Romania, where the EU has backed the majority of construction projects, the industry accounts for a large proportion of the invoice finance market. Here then, the combination of flexible technology and a better understanding of the right processes (based on Romania’s experience), would allow UK providers to enter the construction market at a fraction of the previous cost.

The right flexible software would mean components can be adapted to suit specific regional opportunities, enabling companies to stretch outside their safe zones while taking on considerably less risk.


“As markets become more focused on service value and less focused on margins, technology is going to provide increasing flexibility”

Traditionally, working capital finance solutions have been linked to individual needs such as factoring and invoicing. Today though, technology is already facilitating other types of financing. One example is finance against inventory. There has also been considerable growth in asset-based lending (ABL), as large businesses have been able to increase their liquidity with some flexibility. While these are welcome developments for businesses, they are still largely focused on a company’s individual need. However, technological innovation is providing us with access to more data. Consider the general shift towards online transactions, for example: as more business is conducted and recorded online, working capital finance providers are able to see across a client’s whole business with much more clarity. This offers a glaring opportunity to add value by addressing the more holistic needs of a business, rather than just individual parts of it. As a consequence, there is likely to be a shift towards a more holistic approach to working capital finance solutions whereby a client can expect one solution to cover all of its financial needs for purchasing, inventory and sales.

You only need to consider the potential impact of digitisation (or the move away from paper-based administration). E-invoicing, for example, is now commonplace in our personal lives, from online banking to PayPal transactions. But it is also a major upcoming shift in B2B commerce, which presents huge opportunity to the industry. In an attempt to build an audit trail to make tax avoidance harder, for example, the Brazilian government has increased its tax revenues significantly by making e-invoicing obligatory through its Nota Fiscal Eletronica (NF-e) system. In doing so, it has created a digital record of every transaction. This offers a whole new set of data that will likely fuel new innovation.

Having all of this data digitally also allows providers to build transparent solutions, by offering electronic links between a company and a funder. Digitisation also offers significant cost savings. Companies can reduce the cost of storage by using more scalable, high-security cloud-based services. These cost savings will be significant in some of the more mature, low-margin markets like the UK, and will further fuel the growth of innovative value-based service propositions as finance is freed up.


We predict a number of shifts in the way working capital finance solutions are provided. Firstly, as markets become more focused on service value and less focused on margins, technology is going to provide increasing flexibility. This will make it easier and more cost-effective for providers to enter new markets and take advantage of new opportunities to increase profit.

As technology enables firms to seize more opportunity, regional variations and regulatory change will likely provide ideas around how to grow profits. Supported by nimble software, providers will be able to take on more niche opportunities at much lower risk. Certainly, developments in the less-constrained developing markets – which are free of inhibiting legacy – are likely to drive new innovation across more mature markets. And while the field is already evolving beyond the more traditional factoring and invoice discounting offerings, increased access to data is likely to lead providers to think of their services much more holistically. All of this provides significant opportunity to working capital finance providers and is likely to lead to a growth in the provision of working capital finance solutions globally.

This paper has been written by Keith Lewis on behalf of Lendscape.