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Invoice discounting has often been reserved for larger, well established businesses and smaller businesses have been forced to accept invoice factoring.

The good news is that invoice discounting can be accessed by smaller businesses.

Why do smaller businesses want invoice discounting?

The small businesses that I speak to often want invoice discounting because they either want to remain in control of their sales ledger meaning that they want to chase their own invoices or they want a confidential facility. Invoice discounting allows a small business to do their own credit control and it can also be confidential. In fairness it can also be more cost effective although at lower levels of turnover not dramatically cheaper.

So why did lenders not offer smaller businesses invoice discounting?

Traditionally invoice discounting was not offered to smaller businesses as it was felt that they did not have the systems in place to chase debt effectively. Lenders were also concerned about how robust small businesses were in terms of their financial status. Lenders also feel that factoring offers them a lower risk as they are closer to the debt. They are closer to the debt because they are speaking to the end customers when doing the credit control and customers are aware of their involvement due to the disclosure notices on the invoices.

So what has changed?

In fairness quite a few things have changed. The market has become more competitive with more lenders fighting for the same clients business. As such lenders are more inclined to offer clients what they are looking for. Lenders systems and ability to manage risk have improved allowing them take a more balanced view to lending to small businesses. Small businesses also have access to more sophisticated systems meaning that their own credit control systems are more advanced than they used to be.

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