Invoice finance proves popular
Article Date: Mar 23 2006
Growing businesses are increasingly opting for factoring and invoice financing as a means of starting and growing their enterprises, according to figures released by the Factors and Discounters Association (FDA).
Factoring offers a means by which early-stage businesses can rapidly raise cash against as yet unpaid invoices, while invoice discounting is a similar service targeted at slightly larger businesses.
The main difference between invoice discounting and factoring is that, while the latter sees the financing firm advance its customer a percentage of its unpaid invoice value and then go on and collect the money owed itself, the former allows the client to retain complete control over its sales ledgers and cash collection procedures. To this end a business’ customers will never find out that an invoice discounting firm is involved.
According to the FDA, in 2005 around 43,000 UK businesses were advanced over £11 billion by FDA members, with SMEs accounting for 99 per cent of those taking advantage of invoice finance.
‘Just ten years ago only 13,000 companies in the UK used invoice finance but now this has increased to 43,000,’ reflects Kate Sharp, Chief Executive Officer of the FDA. ‘We can attribute this success to the growing awareness of the flexibility offered by invoice finance products, which can grow in line with a business' working capital requirements.
‘Our figures show that the use of invoice finance peaks when businesses are starting up and then again when the company's turnover passes the £1 million milestone.’
"Increasingly we are also seeing large corporate organisations turning to invoice finance, particularly confidential invoice discounting which allows them to retain control of their sales ledger. Anecdotal feedback suggests there is a definite increase in M&A activity being part funded by invoice finance as companies use packaged deals to raise greater amounts of finance,’ she concludes.
For more information visit the FDA website www.factors.org.uk or read our feature, Factoring for fast cash solutions.
