By Paul Christensen, CEO at Previse
The past year has been characterised by what has arguably been a time of unprecedented political and economic uncertainty in the UK. Two scheduled Brexit departures – and then no departure – and the ensuing general election, have all contributed towards mounting challenges and opportunities alike for businesses.
This period of flux has touched organisations of every size, and none has been immune. However, there has been one opportunity for change that has risen out of this uncertainty that deserves attention. The issue of slow payments in the B2B world is nothing new, with the ramifications for SMEs receiving well deserved attention this year. But now, with the turbulence that lies ahead for Britain and beyond, we are presented with a unique opportunity to take ownership of the problem and at the same time, bring much needed benefits to the wider economy, including businesses big and small, that could help weather the uncertainty that lies ahead.
Here are three ways in which solving the slow payments problem could reap benefits for the wider economy:
- Employment would rise
If we were to alleviate the problem of slow payments in the B2B world even slightly, employment would likely rise significantly. In 2018,75% of businesses had no employees other than the owners. Many of these businesses could grow and expand, but are unable to as their cash flow is not reliable enough to commit to employing another person.
For many start-ups and smaller sized businesses that are in the process of actively expanding their workforce, they may find themselves pushed into a corner, forced to turn down business that is beyond their capacity without the additional resources. It goes without saying that this limits their long-term prospects, but, more importantly, creates a vicious cycle of stagnation in entrepreneurial growth – something the UK does not need in a time when the city’s status as a financial and tech hub is under threat.
- We could create a whole new category of insurance
If machine learning were harnessed to facilitate instantaneous B2B payments, this would create a whole new category of insurance. Unlocking value in data through artificial intelligence is becoming one of the biggest transformations in this sector.
Technology, trained on trillions of dollars of real invoice spending, could precisely quantify dilution risk, i.e. the contingent risk that a large company won’t pay an invoice for legitimate reasons such as it being incorrect or fraudulent, or the goods were not correctly delivered.
Not only would this help to solve the slow payments problem, it would open up a whole new category of insurance in doing so. More insurance categories would also mean more opportunities for employment. A double win for the economy.
- It could help businesses meet their corporate responsibility goals
Effective business management is now about much more than simply trying to make a profit and provide dividends to shareholders. For businesses to succeed in our evermore interconnected world they must have a 360-degree purpose that engages with all stakeholders sustainably. Paying suppliers – particularly SMEs – is a vital part of that purpose.
Doing so simply by speeding up existing payment processes would be prohibitively expensive, while traditional SCF programmes face the administrative scalability challenges of requiring the invoices to first be approved. Large corporate buyers are in desperate need of tools which can enable them to meet their obligations to their supplier base without compromising their profitability.
Instant payments, on the other hand, could offer an easy solution for businesses to pay suppliers immediately, and in doing so, help them move closer to meeting corporate, economic and governance-related objectives.
The combined effect of these three factors could lead to huge economic growth which is being held back by the issue of slow payments. Instant payment solutions could inject all of this extra capital into the economy, as well as freeing up even more money which is stuck in the supply chain. If slow payments were a thing of the past, it would make all of this capital available to the SMEs who are waiting and chasing for it. With so much liquidity stuck in the cash flow of small businesses, instant payments can allow SMEs to grow to their full potential, free of the burden of late payments.