The current economic climate is having impacts right across the economy, from the largest right down to the smallest of companies. But how has it affected invoice finance? Whereas once upon a time bank funding might have been easier to secure, it’s now becoming all the more difficult and a greater range of solutions are being chosen by small business. So, what role does the economic climate play?
It’s clear that for the UK growth is still hard to come by – we have only to look as the double dip figures and the continuing gloom into 2013 to see this. SMEs are always going to be affected when the economy hits a rough patch. It becomes harder to make ends meet – from fundamental expenses such as payroll, overheads and admin costs to growth funding, everything becomes more difficult.
Not only this, but we have seen the banks shutting down lending to small businesses as they look to reduce their risky debt. This means that not only are small businesses being squeezed by reduced sales and growing expenses, but they’re also unable to turn to the banks for help. Loans and overdrafts are amongst the first things to think about if your business needs to improve its cash flow – but when these aren’t available, it’s necessary to look elsewhere.
In light of this, finance services such as invoice factoring are being embraced by more businesses. The amounts advanced through invoice finance, as a percentage of outstanding sales, can be significantly higher than that available by overdraft. There is growing awareness of invoice finance through its backing by the government, but it is still clear that many more businesses could benefit from the services.
The effects of the economic downturn have meant that business has struggled on a wider scale than felt for a long time – and the outcome of this is that funding is more difficult to come by. With the banks refusing to lend, alternative funding is becoming more popular.