Factoring

Small businesses in the UK are losing a staggering £6.5 billion every year due to unpaid invoices, according to new independent research commissioned by GMAC Commercial Finance .

The Department of Trade and Industry (DTI) estimates that there are 4 million small and medium-sized enterprises (SMEs) in the UK with a combined annual turnover of £1,153 billion. The £6.5 billion written off annually in bad debts means that SMEs in the UK are each losing an average of £16,250 each year in unpaid invoices, a frightening 6% of their annual turnover.

Of course, the actual cost to a business can be much greater than just the unpaid invoices themselves. The time spent chasing payments and the lost income due to lack of funds also have to be taken into account.

In many cases, poor cash flow situations like this can lead to small business owners seeking external investors, giving away equity in the business in return for cash to grow the business.

There is another way

Outstanding invoices are often seen as a burden by SMEs but could actually be the largest asset on the balance sheet.

Factoring and invoice finance services, although still relatively unknown, can provide businesses with a viable alternative to both external investment and expensive overdraft or loan facilities.

As well as providing advances of up to 90% of the invoice value, typically within 24 hours of the invoice being issued, a factoring company can manage the whole process of issuing invoices and collecting payments and can also remove the risk of bad debts affecting the company’s turnover.

While many small business owners will think of their bank overdraft or a personal loan as their first, and sometimes only, options when faced with cash flow problems, the popularity of factoring and invoice finance services is growing steadily among small business owners with over £117 billion of clients’ invoices transacted last year.

Compare instant online quotes for factoring and invoice finance services from a panel of leading providers, including Royal Bank of Scotland Commercial Services, Barclays Sales Finance and Lloyd’s TSB Commercial Finance. Go to our business finance pages and find the right finance for your business.