By Steven Renwick, CEO and founder, Satago
The challenges facing small and medium enterprises (SMEs) when it comes to accessing finance have been well documented. SMEs seeking funding often find their banks preoccupied with compliance issues and the state of their own balance sheets – making them somewhat reluctant to lend to smaller, and what appear to them riskier,businesses.
However, more tech-savvy alternative financiers are entering the market,not merely filling the gap but offering new, sophisticated, innovative products and services that hand control over their borrowing to business owners themselves, at the same time helping them to run their businesses more efficiently.
These financiers of the future are already here, and fintech is supplying them with the cloud-based platforms, data capture and analysis, and process automation capabilities they require to make business finance at the click of a button not just feasible, but profitable, and a win-win for all concerned.
The era of small-business owners filling in lengthy application forms and submitting a sheath of supporting documentation only to wait weeks for approval of an inflexible and expensive funding arrangement will soon be consigned to history. Technology provides the means to make finance for businesses fast, inexpensive and extremely flexible – crucially allowing it to be triggered by the borrowing company itself. In an age when most consumer-facing services are already available online and on demand, business finance has finally caught up with the trend. Selective invoice finance is an excellent example of this type of offering.
It is technology capabilities that are making it possible, starting with the ability to capture, store and represent vast quantities of data more easily and comprehensively than ever before,without expensive servers or any great overhead for IT;simply utilising the cloud. Crucially, most of this data is now available in realtime.
A financier can therefore have full oversight over a business’finances right up to the minute, including what it owes and what it is owed by its debtors. This includes when ̶ on past performance ̶ each of its invoices is likely to be paid, allowing it to build highly precise risk profiles of the company and its debtors.
Such information, accessible online or on a cloud-based platform, is a liberating aide to decision-making to borrower and funder alike. It frees the financier to take instant but well-founded funding decisions, and it frees borrowers to decide exactly when they need what level of finance, and what to borrow against. Also, it can help the borrower decide which pre-approved invoices to select from its sales ledger to draw against, having first determined the criteria.
Example criteria include those that have the highest likelihood of being paid first, which keeps the term of borrowing short and its cost low – allowing borrowers to pay it back precisely when they can. In the middle of a busy day in the operation of the borrowing business, it really can be this simple: “connect, click, cash” ̶ problem solved. Knowledge here really does translate into power, control and efficiency. A further benefit is, of course,the removal of the need to spend time and resources on periodically reapplying for credit ̶ the constant real-time information flow provides sufficient data for all, on an ongoing basis.
Supporting business efficiency and financial health
Yet there’s more. The tech tools used to support selective invoice finance can be used to help borrowing companies manage their debtors both more efficiently and effectively. The background to this is the continuing issue of customers’ late payment of invoices, which causes SME cash flow problems and even a significant number of outright business failures each year (as is well documented).
Companies can use the detailed information available on the platform to gain control and oversight over their debtors, and to send customised automated reminders to all those with outstanding and overdue invoices. Not only has this been shown to save up to 80% of the time businesses usually spend chasing for payment of these invoices manually, those using it have also found it can save up to 23 days sales outstanding ̶ a substantial efficiency gain for the collecting company.
Since in many cases it is the late receipt of monies that is responsible for causing companies’ cash flow imbalances, these digital finance tools may be used to drive business efficiencies and fundamentally improve the financial health of SMEs.So not only does an SME using such tools become its own banker, it becomes its own doctor too.
Fintech has already greatly improved the overall experience and the choices of consumers. Now it is beginning to do so for SMEs as well. This is disruptive innovation at its best, changing the paradigm for business borrowing so fundamentally that the time may soon come when we shan’t remember it was ever any different.