While banks might be the first port of call for small business finance for many companies, that’s not to say there aren’t other options out there. While many SMEs might not have heard of invoice financing, invoice discounting or factoring, it’s an important option that could offer a flexible and secure funding solution. That’s not to say it’s a new idea, however.
A Brief History of Factoring
The general concept of factoring originated over two hundred years ago, across the pond in the United States.
It wasn’t until the 1960s that the first factoring lenders were operating in the UK. The image of factoring as a last resort has now been thoroughly shed – it’s a solution that’s ideal for companies with bulging order books, looking to expand, as well as those who are in the middle of tough times and need that extra bit of cash flow.
This positive image of factoring and invoice finance was mainly catalysed by the formation of the Association of British Factors (ABF), which was formed in 1976. By this time, many mainstream banks had bought into the whole concept of giving businesses funding against their unpaid invoices, and it was seen as a reputable and smart way of raising capital.
Invoice Discounting Enters the Market
In the 1980s, invoice discounting was born. It’s largely similar to factoring, although the company continues to chase customers for payment rather than the factoring lender doing so, which is the case with factoring itself. This lets those who are careful with their customer relations stay in control, raising extra capital without letting a thrid party interact with customers.
During the 1980s, growth in invoice discounting outdid that of factoring, achieving growth figures of 20%. There were many new entrants to the market, especially from overseas, giving companies more options of who to borrow from. It’s still important to choose a reputable lender, such as Select Factoring, who pride themselves on offering low fees and an affordable route to financing.
So, if your business is looking for a flexible, efficient and secure way of freeing up cash flow, invoice finance could be an option. Though it’s not a new idea, it’s definitely one that’s looking to be the next big thing.