Small firms turn to debt factoring

Bosses finding reprieve through invoice financing

Small firms looking for cash are increasingly turning to invoice finance, new figures show. According to data from the Factoring and Discounting Association (FDA), the number of firms using the service increased by 11% during the 2004, compared to the previous 12 months.

Some 39,895 companies turned to debt factors, which buy invoices from businesses and allow them to draw loans against the money owed, as an alternative to more traditional funding options. SMEs accounted for 94%.

The factoring sector is now worth £132 billion and is most popular among manufacturers. Some 12,500 used it during 2004 to improve cashflow or cut back on administrative overheads.

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Separately, FDA also found the problem of late payment had worsened in the UK. Businesses using invoice discounting and factoring complained customers were taking longer to pay than they did in 2003.

The average number of debtor days increased from 57 days in 2003 to 60 days in 2004.

Kate Sharp, FDA chief executive, said: “What is very encouraging is that more and more SMEs see the benefit of using innovative funding solutions to inject cash into their business.

“However, it is worrying that the UK late payment culture has worsened and the introduction of late payment legislation has failed to improve payment terms.”

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