One of the biggest killers of SMEs is cash flow, with ONS figures revealing that almost half fail in their first five years. In this contributed piece, Paul Haydock, CEO at DueCourse, offers insights into cash flow complications and alternative finance for SMEs at a time of unprecedented change.
Late payment is becoming a chronic issue for the UK’s SMEs, with figures showing that small businesses in the UK are owed more than £500bn in outstanding invoices, an increase of 70 per cent in two years. Add to that results from successive Office for National Statistics (ONS) studies, which show only 40 to 45 per cent of start-ups survive beyond their fifth birthday, with between 80 and 90 per cent of small businesses failing because of poor cash flow, and the picture becomes increasingly bleak.
Archaic protocols have dictated for far too long that invoices should be raised and then put to one side for 30, 60 or 90 days, which can have a huge impact on an SME’s cash flow. Unsurprisingly then, the Association of International Accountants SME Snapshot 2016 found that the biggest challenge facing small businesses is maintaining cash flow.
‘Tide beginning to turn’
But the tide is changing, and small businesses, with help from government, are saying enough is enough. Recognising the significance of SMEs to Britain’s economy – a sector that employs 15.7 million people and generates a combined annual turnover of £1.8 trillion – new legislation has been introduced to support small businesses in their battle against cash flow crises. These include the requirement for large businesses to produce a report on their payment practices and performance; and the UK’s nine largest banks are now legally bound to help entrepreneurs find funding elsewhere if they refuse to lend.
Working closely with our partners, we’ve become a trusted supplier of alternative finance and have been able to step in when funding is refused to perfectly healthy small businesses. Because of this, we’ve witnessed the significant impact this can have for those businesses that need to raise much needed capital or to cover upfront costs.
In addition to raising funds, cash flow confidentiality and contract tie-ins are other pressure points for SMEs. As a founding team, we ran our own small businesses and learned first-hand the impact that both areas can have on cash flow optimisation. And so DueCourse was born. As well as offering complete confidentiality, we have removed contracts, minimum payments and early repayment fees, to make the life of small business owners that little bit easier, especially amid intense economic upheaval.
‘Technology changing habits’
But in an age of digital disruption, there’s far more to an SME’s cash flow bow than simply raising the finance. Ongoing digital transformation continues to revolutionise the applications and services on offer to SMEs, irrespective of sector, from couriers and accountants to pest controllers and recruiters. Owners want to run their businesses faster, slicker and more conveniently; they want cash in their bank and the ability to reinvest at will.
And, thanks to the early adopter mentality of the creative and digital industries, we are seeing significant growth of our business within these sectors, driven in no small part by their ability to embrace new technologies.
‘The rise of ‘on-demand’ culture’
Generally, these businesses turn to us to fulfil an immediate need – to solve a cash flow problem, however, increasingly, we’re finding customers use the service on a more consistent basis, highlighting again the ongoing demand for money on day zero of raising an invoice. To date, we’ve advanced over £2 million to SMEs in the creative industry alone.
Given that mobile technology is fast becoming the preferred method of consumption, due in part to the ‘on-demand’ mind-set of this digital generation, cloud-based software continues to drive growth among those looking for easily accessible invoice financing from wherever they are in the world.
Digital disruption has really come into its own and the opportunities for SMEs are vast, provided they embrace it. What we’ve done is simply modernise and digitise an old idea – technology is enabling us to deliver invoice finance faster and simpler; it’s as simple as that. And although small businesses should be excited by the innovation inherent in this disruption – there has never been so many tools to help SMEs streamline practices and improve profitability – the truth is, many of us are so resistant to change, that instead of harnessing these tools, we’ll avoid them, to the detriment of accelerated future growth.
Despite many doom and gloom reports – 35 per cent of SMEs cite late payments or cash flow problems as the biggest barriers to growth – I believe there has never been a better time to be a small business. Thanks to pioneering technologies, we are empowered; we are taking back control of our cash flow like never before to ensure we are fighting fit and able to tackle the new set of challenges that 2017 may throw at us. As long as we embrace the cash flow options that are on offer to us, life as an SME could soon be Streamlined, Mobile and Empowered.