Invoice finance is growing fast. More companies are tapping in to the funds that can be made available by factoring unpaid customer invoices and avoiding the cash flow crisis caused by late payment. But why is it becoming more popular? Far from being a last resort, all sorts of companies are starting to make use of the service, from start ups to medium sized businesses with healthy turnovers. So, what’s behind the growth in invoice finance?
Banks are now more likely to recommend invoice financing as a potential option for SMEs. Many of the main lenders now operate factoring and invoice discounting services alongside their more traditional lending options such as factoring and invoice discounting. This service isn’t restricted to the big lenders however – the internet has facilitated the growth of smaller, independent and local lenders who could offer a more favourable deal than the big banks. It’s now up to you who you go to for finance – you can stick with the banks, or get to know all your options.
There have been official changes in the lending landscape as well. In 2005, there was a significant change in UK law which classed overdrafts as a fixed rather than a floating charge on a company’s assets. This means that if your company goes under, the overdraft provider has less priority in recovering their cash. This is something else behind the banks promoting more factoring services to business clients.
One of the main reasons behind the growth in invoice finance has to be the economy. Banks are issuing fewer loans and overdrafts, and there has to be funding from somewhere. Invoice finance is accessible, flexible and affordable for a range of businesses. It’s going some way to plugging the lending gap created by the banks’ unwillingness to lend. Alongside government schemes aimed at small business finance, invoice factoring it doing its bit for the UK’s small businesses.