05/08/2010
The government has published a paper which claims that invoice discounting and factoring plays a "crucial role" for businesses who want to secure working capital during the economic recovery.
As reported by Smallbusiness.co.uk, the paper called 'Financing a Private Sector Recovery' sets out the range of finance options for different sized businesses and explores the market's attitude to such funding.
The paper explains that the financing options vary according to the size of a business. The paper states that "a dynamic, growing SME sector has the potential to make a significant contribution to economic growth.'' There are around 4.8 million SMEs in the country, which represents 99.9% of all UK businesses and accounts for over half of private sector employment and turnover.
The paper states: "For many firms, debtor balances are the largest asset on the balance sheet, often representing two or three months of sales.''
It explains that, in order to turn these assets into cash, firms opt for asset-based financing options such as invoice discounting or factoring. "Savings in administration can be substantial and faster customer payments mean less need to borrow and lower interest costs," explains the paper. "This type of finance could play a crucial role in securing access to working capital finance during the recovery for many businesses."
Chancellor George Osborne was quoted by Smallbusiness.co.uk as saying: "As the economy recovers, it is crucial to ensure that the supply of finance supports rather than constrains demand and business confidence. If businesses are to play their part in promoting economic recovery it is important that they are able to access a diverse range of finance choices in a stable macroeconomic environment."
The paper launched a consultation into the issue of finance for small business, and will close on the 20th of September 2010.
Laura Nineham