Factoring - financing alternative for SMEs

Financing is necessary to help SMEs set up and expand their operations, develop new products, and invest in new production facilities or human resources. There are a variety of different sources for financing SMEs, internal and external. The insufficient internal resources determine the European SMEs rely heavily on access to external finance in order to run, and particularly to expand, their businesses. There is a range of external financing products available to SMEs which include bank loans, overdrafts, leasing, factoring, venture capital, business angels etc. In the last years, factoring has gained more and more importance taking into consideration its main advantages. Thus, factoring offers more than simply finance: through matching finance with professional credit management services, and in some cases credit protection, factoring stands out as unique from the other competing sources of external finance. Being a simple financing technique, based on invoices, not being necessary the collaterals, with the immediate payment, the SMEs can use factoring in order to improve their cash-flow, without increasing the debt level. Besides, in the condition of financial crisis, the restrictive conditions imposed by the banks and the low level of liquidities on the market makes the factoring an important financing alternative for the SMEs.