The UK Factoring & Invoice Discounting Helpline said that the credit crunch was leaving many SME businesses unable to cope with their mounting debts. The helpline, which acts as a broker to firms seeking business finance reports that there has been a 200 per cent rise in the number of enquiries in the first 6 months of the year compared to last year. The research has shown that banks are still not lending to small businesses.

It is not hard to see why small business owners were so keen on cheap bank lending such as overdrafts and the low cost business loans market. In the 10 years traditionally overdrafts and loans were sure fire way to raise business finance. Now, however SME owners are looking to the factoring and invoice discounting sector as method to raise business finance.

Jeffrey Eow, senior factoring broker at The UK Factoring & Invoice Discounting Helpline comments that 'Everyone talks about getting the economy started and Britain being a world leader, but the banks have made it clear they are not willing to back small business owners, this has led to a rush for alternative business finance, such as factoring and invoice discounting.'

Hundreds of businesses that have called the helpline have come from businesses are profitable and have a good credit ratings. The problem is identified most to the banks' abilities to lend to companies may be restricted. At this critical time for the SME and small business sector and for the prospects of a strong recovery, the banks should be playing their part in supporting small and medium-sized businesses.

Small and medium-sized firms (SMEs), which are the backbone of the British economy and crucial to any prospects of recovery, cannot tap the main high street banks for finance and so are bypassing the banks and taking our factoring and invoice discounting arrangements instead.

Factoring - also known as 'debt factoring' - involves selling your invoices to a third party. In return they will process the invoices and allow you to draw funds against the money owed to your business. Essentially, these companies provide a finance, debt collection and ledger management service.

It is commonly used by businesses to improve cashflow but can also be used to reduce administration overheads. Businesses that supply this service are called factors or debt factoring companies.

Invoice discounting is an alternative way of drawing money against your invoices. However, your business retains control over the administration of your sales ledger. As well as providing finance, it offers valuable support services and credit insurance.

The UK Factoring & Invoice Discounting Helpline gives information on how factoring and invoice discounting work, the advantages and disadvantages, different types of factoring and invoice discounting, the cost, and how to choose a factor or discounter.