Without looking beyond their immediate options for credit (i.e. overdrafts from the bank), many SMEs have had to get used to making do without credit (or with significantly less that they used to have).
This is a real shame, and it could actually inhibit growth for these SMEs during the recovery. Credit is not an intrinsically bad thing – indeed, it is the lifeblood of a growing company. With more liquidity and better cashflow, businesses can invest in new staff, new technology or new products. As a result, they’re able to expand, grow and re-invest. A healthy financial services industry is needed too – so that providers of business finance are on hand to help their customers to succeed and flourish with the right sources of funding.
It’s great news that the UK economy now seems to be picking up. However, as the economy gathers steam there are hidden risks lurking for unwary owner-managers. When the good times return, businesses often get carried away with securing that ‘next big order’ without considering if they have the cash to service the sale. In these situations, invoice finance can be a real blessing to SMEs.
Invoice finance services advance money to companies as new invoices are issued to customers.
This is a more flexible approach than traditional facilities such as overdrafts from high street banks, which are usually for a fixed amount. Unlike an overdraft, invoice financing is linked to current sales, not past performance, so funding can increase alongside growth without exposing directors to sudden shortfalls.
As such, invoice finance offers a competitive advantage to growing businesses. Far from its previous reputation as “funding of last resort”, invoice finance is now being used by healthy businesses to make the invoice book work harder for the company as a source of immediate cashflow and ultimately, help it grow.
Tracy Ewen is Managing Director of the IGF group of companies. IGF is a leading independent commercial finance company specialising in the small and medium-sized business market. Tracy plays an active role in the commercial finance sector, as well as shaping the future of IGF.
