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Invoice Finance: Essential for Small Business?

Despite on-going government schemes to get the banks lending, it is looking unlikely that they will be able to fill the funding needs of the country’s SMEs in the near future. With a significant percentage of loans and overdrafts being refused, where can SMEs turn for lending? Invoice finance is helping to fill this void to get businesses the financing they so desperately need.

The level of invoice financing in the UK rose by 7% in 2011. However, over the same period, the overall lending rate fell by 3.7%. This shows more businesses turning to factoring and invoice discounting when the banks are denying more companies than ever.

Alternative finance is a valuable solution for small businesses looking to grow. According to the Asset Based Finance Association (ABFA), businesses that employ invoice factoring have experienced rises in sales of up to 13% a year. The total turnover for firms using invoice financing has reached £238bn in 2011.

On the other hand, the Federation of Small Businesses has found the number of SMEs using bank finance has fallen in the past two years. Only 35% used a business overdraft in 2011, 11% had used a secured loan and 7% an unsecured loan – all of which had fallen significantly since 2009. What’s more, a third of business owners had used their own personal savings or inheritance to finance their company.

In order to solve the conundrum of needing cash for growth but growth for cash, businesses can turn to invoice factoring in place of the banks in order to get an injection of money that can really help to boost prospects. By releasing cash from unpaid invoices, your business can enjoy better cash flow without having to worry about high interest rates or bank refusals.

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