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Under such deals, lenders advance up to 90% of an invoice to a supplier up front. The client then pays the lender and the latter returns the balance to the supplier 鈥� minus interest and charges. The system, which is frequently used by materials firms and manufacturers, lowers the risk of late payment and boosts cashflow in the supply chain.

Deals have dried up recently amid fears over the ability of housebuilders and contractors to pay. The situation has been compounded by severe difficulties in getting credit insurance, which safeguards against non-payment.

Henry Shinners, associate director at financial advisory firm Smith & Williamson, said the problem was being exacerbated by declining turnovers, which are a measure of how much credit companies can obtain.

He said: 鈥淪maller companies are feeling the triple-whammy effect of nervous lenders, slow-paying customers and declining turnover. Invoice finance is common in the construction supply chain and when it is not readily available it causes obvious cashflow problems.鈥�

Richard Kelly, construction partner at financial services group BDO Stoy Hayward, agreed. 鈥淭he lack of credit insurance has made the invoice finance problem much worse. Where payments are not covered, we have seen companies unable to get credit or only get 50% or 60% of the invoice up front where they previously got 90%.鈥�

Rudi Klein, chief executive of the Specialist Engineering Contractors group, said the wider problem of bank credit was hurting smaller companies. 鈥淔or SMEs we understand the cost of borrowing has gone up by a quarter in the past year. It is the most significant cost pressure on them now and we estimate 20 small companies a week are going out of business as a result."