Combine factoring with credit insurance to beat credit crunch

05/09/2008

It has been over a year since the words 'credit crunch' first made their way over the Atlantic, and in that time UK companies have faced increasing problems with their customers' payment habits.

Accordingly, margins are being squeezed tighter than ever, and cash flow problems are endemic. All of this increases the chances of a business failing, especially a small business that can't afford to wait for payment.

A two-pronged approach could be the ticket to protecting the cash flow of a business.
First, firms should consider using a factoring or invoice discounting service to ensure they get paid the bulk of their invoice value up-front. With so many customers stretching out the time they take to pay invoices from their suppliers, it could be well worth getting all debts factored as a matter of course. Alliance Boots is a high profile company that recently announced it would pay suppliers on 90 days' credit, not 60. Factoring ensures you receive the majority of your money immediately.

In the event that payment is not simply late, but in fact isn't made at all, firms should seek protection from bad debts. Credit insurance will cover 90% of money lost if a customer becomes insolvent.