Think of call centres, and you will probably imagine hundreds of people with headsets working for a giant corporation in an office the size of an aircraft hangar.

You might not think of someone working from home for a small company. But over the past few years, call handling technology has moved from hardware to Internet Protocol (IP) based software, and is increasingly available to small firms, as well as being used in passing calls to staff at home or anywhere else.

Alex Kwaitkowski, a consulting group manager at the analyst firm Ovum, says organisations used to build bespoke contact handling systems, but then the suppliers designed all-in-one packages, finding that most large firms already had systems in place. The suppliers then focused on companies with fewer than 500 call handling staff. "This is the area that most of the vendors were attacking," he says, adding that some systems are affordable for firms with as few as five or 10 call handlers, with the initial cost sometimes lower than £2,000 per staff user.

Vendors selling to the UK market include Alcatel, Altitude, Aspect, Avaya, Cisco, Cosmocom, Ericsson, Genesys, Nortel, Rockwell and Siemens. Kwaitkowski says that an Ovum report a couple of years ago found 70, such is the competition.

Other options include managed services from telecoms firms - BT has a service for small firms called Contact Central - or from application services providers such as Rightnow Technology.

Working from home can benefit the employee, who can work flexibly and avoid commuting. But there are other incentives. Chris Fairfax, marketing director of pet insurance broker Animal Friends (animalfriends.co.uk), says it costs about £30 to £40 to employ someone to take calls from home for two hours in the evening, but nearer to £100 if they come into the office. Staff want more money as they have to travel, and the office needs to be kept open, meaning higher utility bills.

Animal Friends, which employs 16 staff, is the first UK customer of IP Office 1.3, a system from Avaya Communications which enables such home working. This means the insurer can take advantage of lower rates for broadcast advertising at weekends and late evenings, advertise in weekend newspapers and take the resulting out-of-hours calls.

As well as distributing calls, the system will also accept voicemails, and can then email them to staff wherever they are. "If something needs to be dealt with, we can do that 24 hours a day, if someone's awake," says Fairfax.

Outworkers have an ISDN line and computer terminal installed at the company's expense, allowing them to work as if they were in the call centre, offering and taking information. The system also allows calls to be transferred to any other number including mobiles, so staff can take calls when on the road.

Managers, including Fairfax, have ISDN lines and terminals, and take calls themselves when demand is high. "It's bizarre, we have had people ringing on Easter Day. People don't think that's an odd time," he says.

Of course, managers cannot watch staff in the way they can in a call centre, although the Avaya system allows monitoring of work through a web browser. Fairfax says Animal Friends, which donates all its profits to animal charities, has an advantage beyond the fact that its call handling staff is paid partly on commission. "There's no need to crack the whip. The outworkers are interested in animal welfare. If they take the mickey, they are only taking money from the charities."

One advantage of home working is that it allows parents to work a few hours a day from home after children have gone to bed. With low unemployment, it may be beneficial to open a job to a stay-at-home parent. It may also be wise from a legal point of view.

The Employment Rights Act of 2002, which came into effect in April, gives parents of children under six (and disabled children under 18) the right to make a formal request for home working. The employee must have worked for the firm for six months, and must receive an explanation if they get turned down. They then have the right to take their employer to an employment tribunal if this procedure is not followed correctly, or if the firm gets its facts wrong.

However, Jane Russell, a solicitor advocate at law firm Fisher Meredith, describes the act as "a completely toothless wonder - it's just a right to ask, and it's very easy to say no". There are plenty of legitimate reasons to refuse remote working, and the maximum compensation is just £2,080.

But Russell says another legal change that took effect last year - the Sexual Discrimination (Indirect Discrimination and Burden of Proof) Regulations 2001 - may go much further in forcing employers to offer employees home working. She is currently involved in a case involving indirect sexual discrimination in the practice of long inflexible hours, as women tend to take a bigger part in caring for children - one such case has already been won by the employee. The change in law makes it possible to challenge such discrimination, whereas previously it was limited to requirements and conditions. "That's quite a lot broader," Russell says, adding that compensation under this law is unlimited. So legal costs could be another way businesses save by providing home working options, as well as saving on the office electricity bill.

• New software-based call centre technology can be economic for businesses with as few as five to 10 call handling staff.
• Home workers will need an ISDN line and a terminal, and some systems can be monitored through the web by managers.
• Changes in legislation give parents a procedure to ask their employers for flexible working. Organisations may be vulnerable to indirect sexual discrimination charges if they do not offer it.

Get a proper job - at home

The typical caricatured image of the home worker is that of a naive beginner, someone who doesn't know how business really works and who's testing the water - "you never know, doing something properly might hurt, so we'd better start on the kitchen table".

Nothing could be further from the case, at least as far as online publication Fmagazine (www.fmagazine.com) is concerned. Based around the arts and established four years ago, it is published from the home of Luca Bosurgi, a former venture capitalist who has been responsible for a portfolio of 46 companies.

So, with such a professional background, why take the home office route? Bosurgi is clear in his view. "I always say to people that if you have the money for an office, by all means do it, but when you're starting up, be very cautious," he says. "We started this in 1998, and didn't know whether we were going to be successful, but we put in £400,000 at the beginning. Who knows how much more it would have been if we'd paid for an office as well?"

That £400,000 was, therefore, spent not on dead space but on items that would take the business forward. A network of computers linked wirelessly was essential to maintain the home environment; you really don't want to be tearing floors up and cabling a place if you happen to live there as well.

The computers were custom built by the magazine's team: "We wouldn't do that again because prices have come down so much, it would be cheaper to buy ready-made systems," says Bosurgi. "But we've spent money on the best computers and digital cameras available, and the best software for our business."

He hasn't been hammered for insurance either because the value of IT items falls so dramatically immediately, they become secondhand. "It's like buying a new Bentley or Rolls Royce, the value falls immediately you take it out of the showroom."

So incidental costs haven't increased as might have been expected, and, of course, nothing extra has been spent on simply putting a desk in a room somewhere: existing furniture has been utilised wherever possible.

So, four years on, will the company move out of the home and into a "proper" office? Bosurgi thinks not. "We might get an office for one person, where people can have meetings," he muses, but he's mostly sold on the idea of working from home.

"If you're dealing with other countries and time zones and you have an office, you have to stay in the office late to deal with them by phone. If you're working from home you just live your life, take the call in the evening and then carry on."

Other productivity figures are persuasive. If you move from a home to an office environment, he suggests, people's output falls by about one third. "I don't know why that is, maybe people just have a nine-to-five mentality suddenly."

The business has succeeded and the magazine is attracting some high-profile advertisers. So presumably the business model is working.