09/08/2010
The number of SMEs using invoice finance is soaring, according to reports on Fresh Business Thinking.
A growing number of SMEs have been looking to invoice finance as a way to free up cash locked into invoices.
In fact, in the second quarter of 2010, 42% more SMEs opted for invoice finance, which frees up working capital by borrowing against unpaid invoices which the business has issued to its clients.
"Some SMEs want to create some headroom in case of a fall in orders or a possible double-dip," said a finance expert working at a bank which offers invoice finance. "Other businesses want to release cash to fund expansion. They all realise that they will not be able to rely on their bank to give them the kind of overdraft facility that they have used in the past."
The financial expert explained: "Banks have to reserve capital against overdraft facilities even if they are not being used. Small companies remember the lessons of the last recession and they are keen not to be let down at a crucial time by their bank."
The news comes despite many reports which claimed businesses were paying their invoices much quicker. As reported by The Recruiter, businesses on average paid their bills three days earlier than they did last year. Joe Myers, head of commercial credit at Experian, who conducted the research, said: "Even though they remain among the slowest payers, the largest companies have improved significantly over the past year."
However, according to Fresh Business Thinking, it's thought that a growing number of SMEs are embracing invoice finance because their clients aren't settling bills soon enough.
Laura Nineham