UK Finance News

It is still early days for the new coalition government to get tough with high street banks, but according to recent research the traditional UK banking sector is still not fulfilling its promise to make more funds available to small businesses.

The Forum of Private Business claims that business owners are finding it more difficult than ever to access finance and indeed many report that they have had overdraft facilities cut, or withdrawn altogether.

In a separate survey the Federation of Small Businesses found that 25% of its respondents are unhappy with the support they are getting from traditional lenders.

Whatever way you look at it the traditional lenders that were rescued from the financial crisis by the previous government are still refusing to play ball with many small business account holders.

This is not always the fault of the banks of course as many SMEs are primarily sales orientated and will take an order at any cost, even when knowing that they may face a long wait for payment from the customer.

For these businesses collecting outstanding accounts is a secondary consideration that will never receive the same attention as obtaining an order.

There are of course other options to conventional banks when looking to finance the growth of a business and among these are Factoring and Invoice Discounting. Companies offering these services operate only in the business sector and should therefore understand your needs better than some of the more traditional lenders.

Factoring and Invoice Discounting are quite often considered to be same thing, this is not actually true and the basic differences are explained here.

Factoring is a process whereby a business sells its outstanding sales invoices or accounts receivable to a third party (Factor) at a discount, in return for immediate payment. This is a continuous process that ensures a regular cash input into the business each month and reduces the need to chase bad debts.

The Factoring company is then responsible for collection of outstanding accounts by providing a full sales invoice administration coupled with credit control and debt collection service, enabling the business owners to concentrate fully on growing the business.

Alternatively, an Invoice Discounting Company will lend your business money using the sales ledger as collateral, releasing immediate cash against sales on a regular basis.

The business owners retain full control of the sales ledger and remain responsible for the collection of outstanding accounts.

This article is intended as a very basic guide to Factoring and Invoice Discounting versus conventional banking in the UK for SME Businesses. Services in this sector are tailored to suit individual companies and anyone looking for alternative funding for their business should seek advice from the experts in this field.