By Claire West

UK bank Aldermore has revealed that the number of small and medium businesses (SMEs) using invoice financing is soaring, as small companies look for new ways to deal with the SME funding crisis.

In the second quarter of 2010, Aldermore provided 109 Invoice Finance facilities to SME businesses, up 42% on the 77 facilities put in place in the same quarter a year ago.

Invoice finance is used to free up cash and working capital by borrowing against the business’s unpaid invoices.

Aldermore says that small businesses are increasingly frustrated with the inability of some of the big UK banks to meet their demands for funding.

Ian Wilkins, Managing Director at Aldermore’s invoice finance arm, said: “Some SMEs want to create some headroom in case of a fall in orders or a possible double-dip. Other businesses want to release cash to fund expansion.”

“They all realise that they will not be able to rely on their bank to give them the kind of overdraft facility that they have used in the past. Banks have to reserve capital against overdraft facilities even if they are not being used.”

“Small companies remember the lessons of the last recession and they are keen not to be let down at a crucial time by their bank.”

“I would love to say that the surge in invoice finance business that we are seeing is entirely down to our own efforts but we are definitely helped by the fact that other banks are giving SMEs the cold shoulder.”

Data from the Bank of England shows that net lending to UK businesses fell by £2.3billion in May 2010.

Ian Wilkins says that a lot of small businesses are turning to invoice finance because some of their biggest customers have used the recession as an excuse to pay their bill more slowly.

Ian Wilkins said: “Despite all their charters and promises, some big UK PLCs are poor payers of their small suppliers.”

“Invoice finance ensures that a major bill that a big customer might sit on for months gets turned into cash straight away.”


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