How do small businesses manage to keep a steady cash flow when they are not been given the financial support they need from the big banks? As the big banks continue to prove unwilling to help the small business that are crucial to the survival of the British economy many are looking for more viable options such as payroll finance and invoice factoring to finance their business.

In the wake of the failed UK government Project Merlin initiative to increase small business loans the big banks have come under fire with the number of complaints received by the Financial Ombudsman Service (FOS) from small business on the increase. The number of complaints received by the FOS regarding loans and overdrafts has increased by 10 per cent on last.

The disputed reports detail small business frustrations at the big banks refusal to renew loans or overdrafts, or are renewing them at exorbitant interest rates or one off charges. Even if a small business is able to get an overdraft it isn’t an ideal solution to cash flow problems. Overdrafts are an unsecured loan meaning banks are able to remove the overdraft with little to no notice causing more cash flow problems for small businesses.

As the FOS only deals with complaints from businesses with an annual profit of less than €2 million (approximately £1.8 million) and under 10 employees the full financial squeeze felt by SMEs is exponentially unknown.

It’s disappointing to hear that the banks are not working with economically viable small business to create long term financial solutions and are instead limiting small business ability to create and maintain a steady cash flow.

There have been many people touting the problems of a stunted or limited cash flow with the biggest problems being cutbacks and solvency. And so finding a solution that means SMEs don’t have to cop high interest charges from the high street banks has been a top priority for many.

Invoice factoring solves this problem by providing upfront cash for slow paying customer invoices. By using the unpaid invoice as collateral, invoice factoring companies are able to offer a competitive interest rate. Small businesses are also using invoices as collateral to guarantee that employees are paid on time with payroll services for small businesses.

This allows small businesses to have working capital to invest in growth.

Small business have turned to funding their business, creating cash flow and paying employees using invoice factoring signifies a move away from big bank loans to a more viable lending solution during an economic downturn.

Calverton Factors offer invoice financing and back office solutions for small and established businesses.