By Optimum Finance CEO Richard Pepler 

Being an SME owner manager means being not just a jack, but often a master of all trades as you swap between your core business function to HR, accounting, credit control, financial planning, logistics, web design – the list could go on and on.

If not managed sensibly, this can quickly lead to business burn out. It is also important for any SME owner manager to recognise that however talented, intelligent and energetic they are, they are probably not as good at say, accounting, as a trained accountant who focuses on that specific task all day.

Large companies will have in-house staff recruited to carry out these more specialist business tasks with whole departments dedicated to finance or HR, but most SMEs do not have the capacity to pay full-time staff for such roles.

This is why it has always been necessary to use external expertise at times but it seems to be becoming more so.

As an independent lender specialising in invoice finance solutions for SMEs, we have noticed a marked rise in clients wishing to outsource all their accounts, credit control and debtor protection to us alongside their lending facility in the last 12 months.

This used to be quite rare with most companies opting to take out an invoice finance facility but keeping their credit control and accounts inhouse. We are now seeing about 85% of our clients opting for the full service.

So, why the sudden shift?

Future proofing

The UK is currently going through a period of political and economic uncertainty which shows no sign of resolution. This makes businesses nervous and thus growth more tentative. Business investment in the UK dropped throughout 2018 – the first time we have seen four consecutive falls since 2009 – and while it has picked up a bit this year, it is clear that business executives are holding off on big investment decisions until they have some clarity about the direction of the UK economy.

For SMEs which are more vulnerable to economic fluctuations than bigger businesses, this makes it vital to future proof themselves against potential bumps in the road. In essence, this means protecting their cash flow and balance book at all costs.

This is why invoice finance, by which SMEs can borrow against the value of their invoices and get paid upfront is so helpful. It also explains why we have seen such a big rise in demand for debtor protection which essentially insures an SME against clients defaulting on their outstanding debts.

However, future proofing also means controlling your outgoings carefully and the biggest outgoing in almost any business is its staff.

This is what is driving the growth of outsourcing.

Rather than commit to more employees, companies are increasingly choosing to simply draft in additional services when they need them, meaning they can keep their permanent staff team very lean.

This has multiple advantages which we will now look at:

Project-based work

There has been a general shift across many business sectors to more project-based work rather than retained contracts. Since the recession of 2008 to 2012 businesses have become savvier in their spending, refusing to tie themselves into long-term contracts needlessly. For suppliers this can be a challenge as it means their workload can fluctuate greatly month on month. When a big project lands, they need to be able to upscale and absorb the extra workload rapidly but when it ends, they do not want to be left with excess staff draining the company coffers. This is where outsourcing becomes a vital tool giving companies the agility to survive in this unpredictable environment.

Technology has driven a rapid rise in remote working as businesses are more reliant on digital communications than face-to-face interaction. This makes SME owner managers more ready and willing to outsource work as it is no longer considered a problem to have staff located outside the immediate office environment.

Employment laws

Taking on a new member of staff is a big responsibility which extends beyond simply covering their monthly paycheque. There are dozens of laws and acts dictating the rights of employees which any SME owner must consider before recruiting. These include statutory sick pay, holiday pay, National Insurance contributions, statutory workplace pension schemes, health and safety risk assessments, maternity or paternity leave, liability insurance and so on. In essence, a new staff member is a big expense, commitment and time drain.

For an SME with tight margins, it is a lot quicker and easier and far less risky to use freelance support where possible. While freelance or external providers may charge a higher hourly rate, they are only paid for the specific work they do and save businesses the many responsibilities that come with taking on in-house staff.

Easy access to greater expertise

While staff in most SMEs are used to helping out on a broad range of business tasks, whether it is sales and marketing or client handling, they are unlikely to be experts in the things which are a departure from their key role. If they have been employed as a product designer, they probably won’t be brilliant at bookkeeping. This is where outsourcing can be a sensible route as SMEs can draft in someone who is an expert in their field to do the task in hand. Our credit control team for instance can save staff many tiresome hours chasing down of clients for payment and facilitate better in-house relationships with the clients by removing that potential source of tension.

There is a dual benefit as the outsourced task will be done really well and efficiently while also enabling your staff to focus on their key roles, enhancing performance and job satisfaction.

Key services for outsourcing

For all the reasons above and more, outsourcing can be integral part of any SME business growth strategy. Technically, there is no limit to what a company could outsource but there are certain functions which lend themselves much better to this than others. Many of these are related to the more administrative and financial side of running a business such as accounting, bookkeeping, credit control and IT support.

Other tasks such as sales and client services are best done in-house by staff who have a detailed understanding of your business offering or product and its strengths.

By removing time-consuming admin, you will free up staff time to excel in their key areas of expertise, resulting in a happier, more efficient and more successful company.