SMEs using factoring reporting higher turnover and profitability

03/02/2011

Small and medium-sized businesses that use factoring and invoice discounting are reporting higher levels of turnover and profitability than those using overdrafts or credit cards to fund their businesses.

The SME Trends Index released by Hilton-Baird Financial Solutions, has revealed that SMEs are increasingly using unreliable methods of financing such as credit cards.

The survey, which questioned 717 SME owners, found that almost half admitted turning to overdrafts, whilst 44 per cent said they had used credit cards as working capital, despite the associated high interest rates.

Just 19 per cent used invoice finance solutions – including factoring and invoice discounting – as funding. These forms of financing allow the release of funds – the perfect cash flow solution in the current uncertain climate.

Fifty per cent of firms using factoring options reported an increase in turnover over the last six months, in comparison to just 45 per cent of those using an overdraft and 42 per cent using credit cards.

Forty-three per cent of firms using invoice finance also reported a rise in profitability, compared to just 32 per cent of firms using overdrafts and 31 per cent using credit cards.

Hilton-Baird Financial Solutions' Managing Director, Evette Orams, said, “Our findings demonstrate invoice finance’s unique value as a funding tool.

“Furthermore, as invoice finance facilities can include dedicated sales ledger management and even debtor protection, clients can safeguard themselves against late payments and the risk of bad debts, ensuring they are more robust than their competitors who may be without the benefits of such facilities,” she added.