Quite rightly, SMEs often feel like ‘Cinderella organisations’. The bedrock of the world economy – and especially indispensable to all Western nations – they employ as much as 60% of the global workforce and represent roughly 99% of all companies in the EU. Despite their financial and social importance, they are often left behind in national programmes, access to technology and, above all, funding.
This is felt particularly in retail SMEs. Cashflow shortages are holding them back and with little to no liquidity, their ability to compete with major conglomerates such as Amazon, Alibaba and others, who will never find it hard to access money at scale, is impaired mightily.
This is especially evident in retail and wholesale e-commerce. Goods sellers worldwide must have fast and easy access to cash to keep their inventories full, especially when dealing with disruption. It is the best way strategy to deal with recent global supply problems – Brexit, the pandemic, the war in Ukraine. And when SMEs fail to satisfy demand, the major retail barons take their place and retain their dominance forever. That’s bad for the market, bad for the economy and bad for the consumer.
Traditional financing model for SMEs not fit for purpose
If any market is ripe for scrutiny and maximised efficiencies then, it is funding for SMEs. And the traditional model of financing is simply not fit for their needs. They face silent discrimination by virtue of the inflexible rules and procedures of the traditional banking system.
Major banks (despite their massive investments in IT in the last decade) remain one-trick ponies. “Show us your historical profits and our computer will tell you if you are eligible for financing or not”, they say. But that’s not how companies work in today’s fast-moving world. Retailers and wholesalers produce huge amounts of data each day that can be analysed in real-time, giving the financing institution much more insight into the actual health and needs of an organisation, especially as it develops.
As such, banks’ almost universal failure to examine the wealth of numbers and details is baffling – thwarting and impeding SMEs’ growth and denying the banks themselves with sound business propositions.
The global pandemic saw huge growth in retail and e-commerce. It was not uncommon to see small one-man bands skyrocket into middle-size companies. However, such staggering expansion is too fast for many businesses to scale up properly. This includes attracting and retaining top talent; installing and upgrading appropriate tech systems; learning from competitors who have successfully grown; and identifying barriers to growth.
None of these are especially easy – and they usually demand a lot of time and money. We talk to business owners every day who tell us the same story again and again: “We live day to day, basically holding the company together with sticky tape and praying it will survive”.
Sophisticated inventory forecasting lenders
What these operations need are sophisticated inventory forecasting lenders. These can providers clients’ future sales based on their historical data with high accuracy, then deliver the appropriate funding when needed via disruptive financing partners.
These pioneering partnerships understand the needs for cash in retail SMEs’ day-to-day operations. They live their clients’ struggles from an informed, very close perspective and give them easy access to funding.
The principle of such an arrangement is simple. The inventory forecaster’s AI predicts clients’ future sales and values the perfect amount of inventory that needs to be ordered from suppliers to match consumer demand. This places a very exact, very business-associated price tag on their financing needs. With the client’s consent, it shares this data with the funder. They plug the numbers into their learning algorithms and, within minutes, create a one-click individual offer, which is delivered instantly to the client. If they agree, they receive cash within 24 hours, which is how financing really should work for anyone.
Powering a funding revolution
Disruptive data-driven startups are fast-emerging and are powering a funding revolution for small-to-medium-sized companies. For example, Irish revenue-based financing and growth platform for eCommerce merchants, Wyflyer, is already an established data-driven financing startup, with more than half a billion USD in e-commerce business funding.
Unsurprisingly, it saw an opportunity in inventory planning and the associated financing and started its own inventory management services earlier this year.
Data-driven fast and easy access to cash will become the norm. It is tailored, it is unbiased and it is low risk for the financing institution if the data source is rich. Access to data-driven funding is inextricably linked to access to super-IT, which brings us to the last point.
Most SMEs, retail or not, are still Excel managed. This creates an unsustainable technological divide between the small and the super-powerful conglomerates. All the major data silos, the best AIs, the top-rated developers at Amazon, say, create an environment that simply gives little to no chance for smaller companies to compete.
But the so-called “democratisation of technology” process is quickly changing the landscape. AI and other cutting-edge technologies no longer need be a luxury for any enterprise. Accessible, easy-to-set-up SaaS tools create a bristling armoury of powerful opportunities for our ‘local heroes’ – at an affordable price.
Small companies have access to cutting-edge technology like never before. This creates a double-positive effect. Not only can they enjoy the benefits of data-centred algorithms immediately, but further machine-to-machine communication will also multiply the gains as SaaS startups become interconnected with APIs. Such closely linked environments create cases for data-driven financing and these will surely become the new norm for SMEs.
Indeed, the process has already begun.