Jeff LonghurstChief Executive Officer

Asset Based Finance Association

ABFA Update• Strategy• Communication - Government affairs• EU Federation for the Factoring and Commercial Finance Industry• Education and Training• Financial Services Trade Association Review• Marketing - ABFA survey of Clients and Intermediaries

The guardian of the Asset Based Finance industry’s standards, its promoter and representative with legal and governmental agencies

and the leader in the provision of training and education.

The ABFA Vision

Strategy -Five year plan 2016-2020• Membership

– Support– Communication– Forums and Events– Standards

• Communication– Government Affairs & Policy– Public Relations – Marketing

• Education & Training• Administration

– Staff– Finance.

Government Affairs and Policy: recent and ongoing• Ban on Assignment: extensive, extended contribution to policy development and

lobbying, including multiple Member surveys, central to preparation of legislation and IA.

• SMEs as users of financial services: Financial Conduct Authority (PSC also contributing).

• Access to Finance Inquiry: Business, Innovation and Skills Select Committee (PSC also contributing).

• Finance Platforms (SME referrals): ongoing contribution on effective implementation, in conjunction with BBA.

Government Affairs and Policy: recent and ongoing• Review of the Enterprise Finance Guarantee (EFG): scheme design and now

additional substantive review and relaunch.• Small Business Commissioner: contribution to policy development.• Enhancing the use of credit data: Bank of England initiative – contribution to

policy development.• Review of R&D Tax Credits: contribution to policy development, in particular on

whether could be ‘ABL’d’).

Government Affairs and Policy: recent and ongoing• Bills of Sale: Law Commission consultation - initial review, survey of Members,

consultation response, ongoing contribution + JL on steering group.• Moveable Transactions law reform project: Scottish Law Commission (likely to

establish a new electronic register for charges) – ongoing contribution, survey of Members.

• Secured Transactions Law Reform Group: ongoing participation + JL on steering group.

Government Affairs and Policy: key ongoing areas• ‘Consumerisation’ of regulatory approaches: FCA paper is just the start.• Costs of credit: transparency and consistency like to be continuing themes.• Ban on Assignment: still has to get through Parliament again + focus on

enforcement.• EFG review: been here before, but British Business Bank will be doing a

significant promotional pushes with advisors – significant promotional opportunity.• Business Finance Guide: new edition, e-version, interactive sections.• ICAEW ‘Guide to Asset Based Finance’: later on in the year.

EU Federation for the Factoring and Commercial Finance Industry • Executive Committee• Prudential Risk Committee• Legal Committee• Statistics Committee• Other

– Whitepaper on Loss Given Default– Whitepaper on Law affecting ABF across Europe– PR and Lobbying

EU Federation for the Factoring and Commercial Finance Industry • April -EUF sent 3rd position paper on the regulatory gap in the Rome I-regulation.• April EUF sent a position paper to the European Central Bank related to AnaCredit.• May EUF published its response to European Commission’s Green Paper “Building a

Capital Markets Union”:• May EUF sent its Position Paper regarding the European Banking Authority's report on the

revision of the term "credit institution“• May - EUF sent its response to the Consultative Document on the Assessment Methodologies

for Identifying non-bank non-insurer global systemically important financial institutions.• June - EUF published its response to the European Banking Authority's Consultation on

Guidelines on limits on exposures to shadow banking.• August - The EUF sent a Position Paper regarding the Net Stable Funding Ratio to the EBA as

well as to the European Commission.

EU Federation• October - EUF sent a letter to the EBA regarding the Impact of the Supporting Factor on SMEs.• October - Eurofinas, Leaseurope and the EUF the voices of leasing, consumer credit and factoring

at European level, sent the letter to the European Central Bank (ECB) regarding AnaCredit Regulation.

• December - The EUF sent a Position Paper regarding the EU General Data Protection Regulation to the European Commission, the European Parliament and the European Council

• January – Markus Ferber, MEP and Vice Chairman of the ECON Committee chaired a breakfast meeting at the EU Parliament sponsored by the EUF.

• EUF sent a position paper on AnaCredit to the ECB• EUF sent its comments to the second consultative document of the Basel Committee on Banking

Supervision on revisions to the standardised approach for credit risk.

ABFA Education and Training

• 560 attendees of ABFA courses in 2015• Over 40,000 hours of learning provided• 20 day courses• 7 Distance Learning Courses• 13 online courses

Education• Learning Management System

– Launched 1 March 2016– Significant library of readily accessible information for staff in the industry– 9 free of charge courses– Foundation course– 800 registered users to date– Certificate course being transferred onto LMS in 2016

Certificate Modularisation• Work commenced on breakdown / update of 11 stand-alone modules• Significant upgrade to ABL, International Trade, and Financials content• 6 modules required to complete Certificate qualification (3 compulsory + 3

optional)• 10 modules required to complete 1/3rd of Diploma• Flexible, job specific, bite sized learning

Financial Services Trade Association Review• Background

– December 2014.– Recommendations November 2015 BBA, CML, UKCC and Payments UK in first tier.– ABFA EGM 4th March gives authority to Executive Committee and CEO to negotiate entry.

• Current– British Banking Association members still to vote – expected end May.– Following invitation from FSTAR team ABFA in discussions with them regarding conditions for

entry in first tier.– Interim Board comprising representatives of first tier members formed. Vote for ABFA to join in

first tier 23rd June.

Financial Services Trade Association Review• Future

– No appointment of Chair or CEO of new association until BBA vote – hopefully by end May.– Only then can there be certainty as to final structure of the new Association, timetable for

creation etc., etc.. But likely January 2017.– ABFA/FSTAR working on proposal regarding whether to join in first tier or not. Key assurances

regarding separate product board, pricing, governance and protection of small members given and must remain.

– ABFA will keep the Executive Committee and Council members updated on any significant announcements or events during discussions and negotiations

Marketing• Obtain, correlate and aggregate the findings of all members' surveys of users and other stakeholders and from this

develop, initially, a value proposition and then our brand proposition.• Research the most commonly used terms and once we have established which are the most common terms use

only those in all future training and education with the expectation that as members update their agreements or systems that they also incorporate these terms.

• Increase the amount of statistical information from members. More information from members about their clients and performance will facilitate more and better PR coverage which will in turn impact on perceptions of our industry by influencers and government and institutional stakeholders.

• Review and possibly completely redesign the website (subject to cost thereof) to ensure that it is the first port of call for anyone wishing to use or find out about asset based finance.

• Use the Standards Framework as a positive tool. Members must get the message across to their staff that they must sell the concepts of trust and confidence in the product that the ABFA Regulatory Framework brings and also sell this against non-members.

SME AND INTERMEDIARY RESEARCH

SURVEY FINDINGS 2016

Independent surveys conducted to identify prevailing attitudes and perceptions of two distinct audiences towards Asset Based Finance.

Audience Completed Surveys

SMEs 594Intermediaries 269 SMEs

Intermediaries

Method• Members of ABFA were invited to send an email to

their Clients and Key Business Introducers containing a link to an online questionnaire

• Responses are confidential and findings aggregated / non-attributable

• The Survey was incentivised with a draw for an Apple Sports Watch

Industry Sector Response %

Manufacturing 24Distribution 17Professional services 14Other 11Construction 9Engineering 8Transport 8Retail 5Healthcare 5Recruitment 5Information technology 3Financial services 2Wholesale 2Industrial 1Telecommunications 1Utilities 1

Manufacturing

Distribution

Professional services

Other

Construction

Engineering

Transport

Retail

Healthcare

Recruitment

Information technology

Financial services

Wholesale

Industrial

Telecommunications

Utilities

Sector

Current Business Situation Response %

Growing business59

Steady state28

Business continuity10

New start3

0 10 20 30 40 50 60

Growing business

Steady state

Business continuity

New start

Business Situation

Answer Options Response Count

1 to 5 employees 13

5 to 10 employees 14

11 to 50 employees 44

51 to 100 employees 13

101 to 250 employees 10

251 to 500 employees 3

501 plus employees 3

1 to 5

5 to 10

11 to 50

51 to 100

101 to 250

251 to 500

501 plus

Size

KEY FINDINGS

ADVISERS In your experience, to what extent do you believe that business owners understand Factoring, Invoice Discounting and Asset Based Lending?

Options Good % Fair % Poor %Factoring 20 49 31Invoice Discounting 18 50 32Asset Based Lending 26 45 29

Options Yes % No % No Response %Invoice Discounting 81 13 6Factoring 80 8 12Asset Based Lending 50 32 18

SMES If you were asked to describe the following finance options to a business colleague, would you be able to provide a clear explanation through your knowledge of the service?

Understanding

SMES Which of the following phrases would you associate most closely with the finance options below?

Options Factoring % Invoice Discounting % Asset Based Lending %

Cash flow 84 78 44Working capital 62 76 51

Growth capital 26 34 72

Don’t know 4 1 1

ADVISERS Which of the following phrases would you associate most closely with the finance options below?

Options Factoring % Invoice Discounting %

Asset Based Lending %

Cash flow 72 72 14Working capital 44 53 32

Growth capital 12 16 54Don’t know 6 4 9

0 100 200 300

Cash flowWorking capitalGrowth capital

Don’t knowFactoring %

Invoice Discounting %

Asset Based Lending %

0 50 100 150 200

Cash flow

Working capital

Growth capitalDon’t know

Factoring %

Invoice Discounting %

Asset Based Lending %

Terminology

WORKINGCAPITAL

AssetBased

Lending

Factoring

InvoiceDiscounting

Businesses• “It is a straightforward and flexible way to fund working capital requirements.”• “To provide working capital and finance to assist business growth.”• “Either of these options provide flexible financing to support the working capital

needs of a growing business.”• “Good source of short term working capital requirements.”• “Flexible option, cheaper financing and better supports working capital cycles.”• “Appropriate vehicles for business in both working capital and expansion.”• “Best way to provide working capital for the business.”

Intermediaries

• "Clients talk about needing a loan or working capital etc. (i.e. specifics).”• "All have their place in securing a balanced mix of funding for clients working

capital requirements."• "Great way to fund their companies working capital requirements."• "Maximizing working capital."• "Deemed appropriate solution for growing companies working capital needs."• "Excellent working capital facility."• "A methodology to release working capital and cash from assets.”

ADVISERS Which of the following would you recommend to your clients?

Options Response %Invoice Discounting 72Asset Based Lending 70Factoring 53

SMES Which of the following would you use?

Options Response %Invoice Discounting 74Factoring 37Asset Based Lending 30

0 20 40 60 80

Invoice Discounting

Asset Based Lending

Factoring

0 20 40 60 80

Invoice Discounting

Factoring

Asset Based Lending

Recommendations / Usage

ADVISERS Which of the following would you not recommend to your clients?

Options Response %Factoring 17Invoice Discounting 3Asset Based Lending 4

Options Response %Factoring 40Asset Based Lending 28Invoice Discounting 9

SMES Which of the following would you not use?

0 5 10 15 20

Factoring

Invoice Discounting

Asset Based Lending

0 10 20 30 40 50

Factoring

Asset Based Lending

Invoice Discounting

Non-Recommendations / Non-Usage

ADVISERS In which situations would you recommend Factoring to your clients? (Please select 5 that apply)

Situations Factoring %

a) Funding future sales 42b) Funding late customer payment 41j) Turnaround 38g) Payment of creditors 37h) Restructuring 35k) Crown arrears 31d) Management buy out 23c) Management buy in 22e) Merger or acquisition 22i) Shareholder exit for retirement 19f) New plant/machinery/equipment 5

Situations Factoring %b) Funding late customer payment 34a) Funding future sales 31g) Payment of creditors 29j) Business continuity 22l) Would not use 15

k) Other funding options not available 8h) Restructuring 7d) Management buy out 6e) Merger or acquisition 5c) Management buy in 5

f) New plant/machinery/equipment 5m) Crown arrears 4i) Shareholder exit for retirement 4

SMES In which situations would you use Factoring? (Please select 5 that apply)

Situations - Factoring

ADVISERS In which situations would you recommend Invoice Discounting to your clients?

Situations Invoice Discounting %

a) Funding future sales 51b) Funding late customer payment 45g) Payment of creditors 45d) Management buy out 43h) Restructuring 41j) Turnaround 41c) Management buy in 39e) Merger or acquisition 38i) Shareholder exit for retirement 32k) Crown arrears 30f) New plant/machinery/equipment 5

Situations Invoice Discounting %

g) Payment of creditors 51a) Funding future sales 50b) Funding late customer payment 42j) Business continuity 34e) Merger or acquisition 14d) Management buy out 13h) Restructuring 13

k) Other funding options not available 12i) Shareholder exit for retirement 11c) Management buy in 10f) New plant/machinery/equipment 8m) Crown arrears 5l) Would not use 4

SMES In which situations would you use Invoice Discounting? (Please select 5 that apply)Situations – Invoice Discounting

ADVISERS In which situations would you recommend Asset Based Lending to your clients?

Situations Asset Based Lending %

f) New plant/machinery/equipment 64h) Restructuring 51d) Management buy out 49c) Management buy in 45e) Merger or acquisition 45j) Turnaround 42i) Shareholder exit for retirement 40a) Funding future sales 26k) Crown arrears 26g) Payment of creditors 17b) Funding late customer payment 10

SituationsAsset Based

Lending %

f) New plant/machinery/equipment 53e) Merger or acquisition 27d) Management buy out 22h) Restructuring 21i) Shareholder exit for retirement 20c) Management buy in 18a) Funding future sales 12j) Business continuity 10l) Would not use 7k) Other funding options not available 7g) Payment of creditors 6m) Crown arrears 4b) Funding late customer payment 2

SMES In which situations would you use Asset Based Lending?

Situations – ABL

Businesses lack knowledge / understanding of Asset Based Lending

• "Do not understand Asset Based Lending.”• “Where raising money to buy an asset I would use Asset Based Finance so the

financing term could be matched more closely with the life of the asset and for Cash Flow or Working Capital I would use Invoice Discounting.”

• “Asset based lending - facilitates fleet replacement and spreads cost across the life of vehicle."

• "Asset based lending aids cash flow for fixed asset additions."• "Asset based lending to support fixed asset acquisitions.”

Intermediaries perceptions of business understanding of Asset Based Lending• "This is shrouded in mysticism. There is only a basic understanding of this

product.”• “I think this is more industry jargon rather than a term businesses looking to

borrow money would use.”• “Usually confused with asset finance. Good amongst those that understand it.”• “Not sure that they would really understand it at all. There would probably be

confusion with it seen as just HP or leasing.”• “There is a lack of knowledge regarding the different products available and

education is key.”

Intermediaries also misunderstand the term Asset Based Lending

• “Always tend to be happy to use when buying a specific asset but are less keen to support cash flow.”

• “Funding of capital equipment by this means is an acceptable business tool.”• "Positive. Simple way to fund a variety of assets.”• “Familiar with HP or leasing.”• “To fund new P&E and/or to free up capital for other business uses.”• “Correct for asset purchases.”

ConclusionsHot off the press. So further analysis of the findings needed ButAsset based Finance is misunderstoodSMEs don’t like Factoring.Working Capital (Cash Flow) is what our product reflects and we should push this concept.The working party will reconvene and make recommendations on our brand proposition but if we are to achieve year on year 10% growth then all members must adhere as agreed to the common branding of the product (not of course of their own services).