Small businesses are facing increasingly difficult times as banks continue to refuse numerous overdraft and small business loan applications every day. With a double dip recession still looming, small and medium-sized enterprises (SMEs) have found it increasingly hard to access funding from conventional sources. For SMEs, managing cash flow efficiently and effectively remains a constant battle.

With business lending becoming increasingly difficult and inaccessible, SMEs are being forced to seek alternative methods of securing cash flow. Furthermore, the majority admit that they would barely survive, and would certainly struggle to grow their business operations, without the use of an overdraft facility. Yet overdrafts are frequently awarded to only those SMEs with a good enough credit rating and where the business owners are able to pledge their own securities.

Many SMEs are feeling forced to consider alternative cash flow options to enable their business operations to expand, but there are other, innovative options available. In fact, indications are that the future of SME lending is set to be much more diverse with the total number of businesses using asset-based funding, such as invoice finance, rising towards 60.000. This trend seems likely to continue.

Despite the negative environment, invoice finance offers a flexible alternative to mainstream capital lending and has fast become the answer that many SMEs have been looking for.

Invoice finance offers an alternative to high street bank lending, and many believe it is the future for SMEs pushing for growth. To put it simply, SMEs are able to access funding that is tied up in outstanding invoices. Cash can be released against an existing invoice, so the greater the value of the sales ledger, and the more cash can be raised. This approach has proved to be a valuable tool for SMEs as access to finance is assessed against the client balance sheet rather than the individual.

In the past, invoice finance has been considered costly, confusing and a poor barometer of financial health. Added to that are the concerns which many SMEs have over the lengthy contract periods which invoice finance companies have dictated. Yet for many, it is fast becoming the future in business planning and securing cash flow. Recent improvements to the industry have paved the way for newer options to grace the market such as selective invoice financing.

Selective invoice finance offers an innovative funding option for SMEs. Higher levels of finance can be secured with lower risks to the all important client relationship. The process works via a one-off approach – by choosing individual invoices to be financed on an ‘as needed’ basis.

Ultimately this allows companies to increase cash flow while better managing client relationships and client debt. Better still, there is no need to sign into a lengthy contract or hand over an entire whole debtor book, which many SMEs find particularly attractive.
As a result of these benefits, a number of SMEs feel that selective invoice finance provides an excellent springboard from which to access working capital. Ultimately, the solution is ideal for those companies who need to maintain control over cash flow.

In essence, while there are times when market conditions require business to seek alternative ways to better manage cash flow, the business case for asset-based finance is always strong, regardless of the economic circumstances.