Is invoice finance the best option for me?

QABecause the banks are reluctant to help me with the right loan, I have been using invoice finance. This has worked for me so far in covering the gap between production and payment, but is there a better option? INVOICE financiers (IFs) claim to advance between 80 per cent and 100 per cent of the value of each invoice raised, but because of an assortment of opaque rules, on average they advance only about 63 per cent.

There are 43,000 businesses in the UK using IFs, a figure fuelled by the reluctance of the traditional banks to lend to SMEs, but virtually all businesses would be better off using another form of finance.

IFs usually require personal guarantees and involve huge amounts of internal administration and complicated fee structures, plus the amount of available finance is unpredictable.

When business is strong, a company will have lots of money sitting in its current account and when business is slow, the finance is not there.

Established businesses with strong order books are better off opting for reasonably priced fixed-term loans, which are easier to obtain than many believe.

For example, ArchOver offers a fixed-term loan for up to two years, which can be rolled over for a further period if desired.

This means the business always knows how much is in the bank and the same finance is available in slow times as in good.

These are secured against the insured long-term value of the debtor book and, as long as the value of accounts receivable stays above a certain level, the finance will remain the same.

The loans are remarkably straightforward to arrange and no personal guarantees are required.

For start-up companies you really need equity finance, as growth is never in a straight line and the problems of good and bad periods are even greater.