Factoring: the funding approach to growing your business.

In most business cases, orders for goods or services are steadily coming in and payment is expected on a large invoice from one of your most reliable customers in a week or two.

Your customer is a little bit late paying you, but you trust them enough to know they will pay you eventually. The dilemma is, employees and other business costs are due to be paid in a few days and funds are not coming in quick enough for you to pay overheads and running costs. It’s no secret that cash flow is notoriously a main concern for SMEs, and it is quite likely that these concerns keep SME bosses awake at night, with a third admitting that insufficient working capital has hindered their growth plans.

Research from Barclaycard showed that 63 percent of SME decision-makers worry about their business’ cash flow, and spend an average of half a working day every week on cash flow activities, while a guaranteed date for payment tops their working capital wish-list.

Money management is not only stressful but most importantly time-consuming, impeding a business’s scalability and growth.

Regardless of whether a business is in an advanced economy, emerging area or somewhere in between, cash flow is a fundamental resource that determines the shelf life of a business.

The challenge for SMEs to find short-term business financing

According to the Small Business Credit Survey, SMEs continued to face ongoing financial challenges — most commonly, paying operating expenses and wages, and credit availability proving to be key factors to decimating cash flow — particularly firms in the leisure and hospitality industry.

Taking control of cash flow could unlock opportunities, and SME leaders have stated that insufficient working capital has prevented them from growing their business.

The obstacle for SMEs is that banks are reluctant to take on risk and lower collateral levels, implying that they require more than the promise of a paid invoice. Banks do not know or have a relationship with your customers, so in their minds, why would they trust and know that the invoices will be paid.

The bank’s approval process becomes slow and less certain, which is also why less than half of all SMEs seek business financing from either large or small banks.

I need cash flow for my business but I don’t want to go to the bank – what options do I have?

The most popular solution to working capital woes, cited by 25 percent of SMEs, is the ability to guarantee a date when payments would be received from a customer. This is followed by being able to protect their accounts receivable regardless of external factors, such as a customer going out of business.

A cash crunch situation is wholly preventable with the right support, small businesses should explore how they can reduce the time and energy they spend on managing working capital problems, and adopt a solution that smoothens out uneven cash flow.

Whether they are looking for a solution to help them seize a new sales opportunity or invest in new business technology, there are a variety of SME-friendly solutions available, a popular form now being invoice factoring (accounts receivable finance) where businesses can advance cash against their outstanding invoices. This form of funding also prevents businesses from getting trapped into cash crunches that plant consequential obstacles, by allowing them to liquidate invoices within just 24 hours.

The Invoice Factoring Marketplace

According to P2P Finance News, the proportion of small firms seeking external finance that apply for asset-based or invoice finance factoring has risen to around one in three last quarter — up from one in seven at this time two years ago. 34% of SMEs now turn to alternative small business financing, most commonly now invoice factoring and invoice discounting. For many of these businesses, these options are the answer to their cash flow crisis.

Any business that sells a product or service can seek options to balance uneven cash flow by enlisting invoice factoring companies. Often companies have to wait up to 90 days for their customers to pay them for work they have completed, this delay can put significant pressure on a business owner’s ability to meet financial obligations.

Factoring is the cash-management tool of choice for many companies and is very common in certain industries such as manufacturing or construction, where waiting for customers to pay are part of the business cycle.

There are different forms of factoring that a business can choose from, such as invoice discounting and invoice factoring, depending on which method suits best.

The essential difference between factoring and invoice discounting lies in who takes control of the sales ledger and responsibility for collecting payment. With factoring, the provider takes the role of managing the sales ledger, credit control and chasing customers for settlement of their invoices. With invoice discounting, your business retains control of its own sales ledger and chases payment in the usual way.

Most common industries that use a factoring facility

In most cases, factoring firms are used by a wide range of industries because they offer the flexibility needed to react quickly when the market changes and can form the basis of a plan for growth. Businesses that are seasonal, growing too rapidly, high-risk, low-profit, un-established, or struggling with poor cash flow are good contenders for financing receivables.

Most commonly, industries that reap the advantages of invoice financing comprise of construction, recruitment, manufacturers, logistics, wholesale, and distribution.


The hierarchy of contractors and sub-contractors in the construction industry often means long delays in payment for those at the bottom. Construction factoring addresses this issue and helps whether you’re a single, independent contractor near the bottom of the payment chain or a small company in the middle.


Recruitment companies help people find work and bring in money when the job market is otherwise slow. Having said this, even the recruitment agency themselves can experience cash flow troubles for several reasons.

The discrepancy in the time between paying staff and getting paid for the services provided has always been an age-old dilemma for recruitment companies to overcome. With such long waiting periods for payments, recruitment companies stumble to manage any sort of control over cash flow, making planning for future all the more impaired.


Having a positive cash flow is crucial for manufacturing companies. When the cash flow becomes stagnant or even decimates, a company in this industry could go out of business or suffer a severe setback because it cannot fulfill its orders. There are several functions that operate within a manufacturing firm that depends on cash flow and its future, such as high production costs, tariffs, rising transportation, fuel costs, and fluctuating currency values.


Companies within the logistics industry tend to have a weightier demand for cash than many other industries, due to seasonality reasons such as fluctuating costs of fuel. This leads to companies struggling to find the cash they need to ensure smooth operations or make reliable financial projections. A logistics company’s performance success depends on being able to deliver services within a fast response time and with an influx of cash flow, these key performances can be easily met.

Wholesale & distribution

Cash flow is a renowned occurring problem for wholesale and distribution companies. The payment terms between a wholesale company and larger companies such as high street retailers, e-commerce sites, supermarkets, and department stores are around 120 days. Within distribution, customers expect efficient systems for timely delivery of goods, but their payments do not always follow those same expectations.

The disparity between delivering goods and receiving payment for those goods means manufacturers have unreliable cash flow, which in turn stunts their growth potential and falters opportunities to sell to new stores or accept further incoming orders with customers.

Whether you need to improve your cash flow to keep up with bills or to expand your business, factoring firms can offer affordable and fast financial solutions.

How to get started….

For any business, whether new or established, there is always a challenge of not having enough working capital to sustain and grow, particularly if new customers have agreed long payment cycles that can take as long as 60-90 days to pay.

At Populous World, we fully support businesses of all sizes and industries to financially propel to a position where they can focus on expansion, innovation and hiring the right digital skills needed, without having to worry about cash flow shortfalls.

For more information, or to speak to a member of our funding specialist team, contact: [email protected]