Lloyds Pulls Invoice Finance Service in Shift Toward Big Clients

Lloyds Banking Group is shutting down an invoice financing service dedicated to small business customers, as reported on December 28 by the Financial Times (FT).

The report says that the move came as the UK’s largest lenders started shifting their focus towards more lucrative corporate clients.

Lloyds To End Its Invoice Factoring Service

Lloyds intends to close its invoice factoring service by the end of the year, according to two individuals familiar with the matter. However, reports have highlighted that this will be a major blow to small enterprise customers operating on thin margins.

The move to end the service, under which Lloyds buys unpaid invoices from small businesses and provides the right to receive the payments from their customers in return, came after several other top lenders decided to do the same. 

Unfortunately for small businesses, it also comes at a time of rising costs, especially considering the recent increases in the minimum wage and successive tax-raising budgets by Chancellor Rachel Reeves.

Craig Beaumont, the executive director at the Federation of Small Businesses, commented on the move, saying: “As cost pressures rise across employment, business rates and energy — and as interest rates fall — banks should take a more generous position to help small business owners access working capital.”

Larger Companies Make For More Profitable Clients

Invoice factoring is the process of selling outstanding customer invoices to banks or finance companies at a discount, in return for receiving cash upfront.

Typically, this has been useful to smaller companies that needed to smooth their cash flow and free up resources by outsourcing payment collection to external agents.

Banks joined the factoring business in order to attract smaller companies, as well, but running a factoring business profitably can be difficult for them, as they do not generate significant profits from small and mid-sized firms. 

Corporate clients, on the other hand, are far more profitable, as many of the banks have discovered. NatWest and Barclays have already closed their factoring businesses years ago, while HSBC decided to tighten its criteria for the service, limiting it to customers with over a million pounds in yearly turnover.

Now, Lloyds is joining them as well. While the bank did not comment, according to FT, one person close to it said that Lloyds would continue to provide other similar services to customers to ensure they would not face significant disruption.