Invoice factoring – a lifeline for new and vulnerable businesses

04/02/2010

Cashflow is a major problem for start-ups, according to GoldOne accountancy, which claims that 120,000 new businesses will be launched in the first quarter of the year.

The beginning of the year is traditionally the most popular time to start a business and more people are beginning to work for themselves as a result of being made redundant last year.

However, two thirds of these businesses will fail, according to statistics. Even successful profit-making businesses can fall foul of poor cashflow, claims GoldOne, which explains that this is where invoice factoring comes in.

Factoring out invoices can provide a lifeline to otherwise successful firms who could find themselves becoming one of the statistics without this help. Several factors can lead to poor cashflow, such as inefficiently-run spending and a lack of organisation. In addition, the recession has led a vicious cycle of non-payment to occur, where small firms delay paying their invoices, which leads other small firms to be short on funds to pay their invoices, and so on.

Factoring invoices, i.e. ‘selling’ your invoices to a firm that takes a cut of the invoice value once it is recovered, is a fantastic short-term solution for small businesses.