With cash being crucial to business survival and growth, SMEs need to access cash through alternative funding solutions to continue to enable them to adapt, innovate and grow.

Invoice finance is one of the most effective ways for businesses to improve cash flow and sustain growth in today’s uncertain climate.

As SMEs face up to a deepening late payments crisis, invoice finance – borrowing against the value of unpaid invoices – has surged in popularity to provide crucial support in tough economic times.

By releasing up to 90% of the value of unpaid invoices, businesses can access additional working capital and use the funds to support day-to-day cashflow requirements or fuel future investment plans focusing on corporate social responsibility.

Invoice finance is not a new funding solution; it has been around for decades and has supported many thousands of businesses over the years, as it still does. By unlocking cash that could otherwise be trapped in unpaid invoices, invoice finance is a financial solution that can support the entire credit management process, protect against the risk of non-payment, and deliver funding when many other funding types are unable to.

In the UK, invoice finance has become an increasingly popular alternative to traditional financing options like bank loans and overdrafts, as it offers a more flexible and accessible solution for businesses in need of cash flow support and caters to a wide range of industries, including manufacturing, wholesale, construction, recruitment, and professional services.

Recent data from alternative finance provider Time Finance has shown the growing popularity of invoice finance amongst the B2B community, with demand predicted to rise throughout 2023 as SMEs set out to stabilise their finances.

The new insight shows that invoice finance is ranked highest amongst alternative finance solutions, with 32% of financial intermediaries stating that invoice finance will be the most popular service to support cashflow this year.

Phil Chesham (pictured), Managing Director of Invoice Finance at Time Finance, commented: “We are seeing a real uplift in businesses that come to us for invoice finance, and this is definitely a trend we expect to see continue throughout 2023. At face value, this is an indicator of the cashflow challenges that businesses are experiencing, but looking at this more positively, we can take this as a sign that more businesses are discovering the real value of invoice finance.

“Invoice Finance is a helpful tool to manage cashflow and when harnessed as a part of a long-term financial strategy, it can ensure that a business has an uninterrupted supply of working capital in the bank. As a result, invoice finance enables businesses to inject their own money into their investment plans, whether that’s recruitment, skills development, equipment or marketing.”

Time Finance's plans to double their invoice finances sales team in 2023, with the recent appointments of Thomas Ludden, Tariq Bourdouane, Neil Fullbrook and Casey Baldwin, shows the rising popularity of invoice finance witnessed by alternative finance providers.

There are a number of reasons for the rapid expansion of invoice finance in the UK, but a key driver is an increase in the number of late-paying companies. In their research, Time Finance found that B2B businesses are owed an average of £250,000 in unpaid invoices and some wait up to 120 days for payments to come through.

Access to liquidity is more critical than ever for SMEs who are the backbone of the UK economy, with many traditional financing providers increasingly rejecting applications for cash. Reducing the funding available to SME businesses during tough economic periods only hurts it more at a time when demand for liquidity needs to be expanded and not reduced.

Rising inflation and interest rates, along with increasing energy costs, are also challenging small businesses this year, with many facing closure. Providing SMEs with a path to secure lending will play an integral part in the economy’s resurgence.

Invoice finance provides SMEs with a variety of benefits including flexibility, faster turnaround, scalable funding, higher borrowing potential, and mitigating payment risks. Smaller independent funders also have more flexibility than traditional providers and can take advantage of value-creating opportunities.

By embracing alternative financing options such as invoice finance, SMEs can not only survive but also thrive in a post-pandemic world, despite the current economic challenges they face.