By Steven Renwick on Thursday 9 February 2017
Cloud technology has been a tremendous catalyst for innovation across a wide range of sectors and applications. It has proved a particular boon to small and medium-sized businesses (SMEs), optimising their efficiency by allowing them cost-effective access to secure data storage and back-up, as well as a host of software packages in areas such as accounting.
As yet, however, little has been seen in the way of efforts to enhance the means by which SMEs are able to access funding ̶ with a number of barriers such as extensive on boarding processes and the obligation to submit regular financial reports remaining. Not only do such options lock businesses into long-term contracts with burdensome terms and conditions, they often come with substantial costs such as arrangement fees, which can render them overly expensive and impractical for many small businesses.
But we are now entering an era of easy-to-access digital finance that could transform the way smaller businesses both access and manage their funding. Indeed, on demand business finance is now being offered by pioneering alternative finance companies, which are harnessing fintech developments to offer a whole new level of empowerment.
Such capabilities are being made possible through selective invoice finance. Plugging in seamlessly to businesses’ existing cloud accounting packages, it is taking SME funding ̶to new heights of sophistication and significantly enhancing the user experience, allowing them to choose the precise level and duration of borrowing, and to trigger it with the click of a button.
Invoice financing in itself is of course nothing new. However, combining it with technology capabilities introduces a step change in calibration, giving alternative financiers a comprehensive, unrivalled real-time view of the transaction and payment histories of a debtor business’ customers. This generates a credit profile that is considerably more detailed ̶ as well as constantly updated ̶ and therefore immeasurably more reliable than risk analysis previously available.
Tapping into “big data”, and using analytics to uncover meaningful and actionable patterns in what would otherwise be an overwhelming mass of material, lets lenders offer products that are more in tune with borrowers’ needs ̶ allowing them to select precisely which pre-approved invoices they wish to draw against, and for how long. By choosing those that will be repaid first, for example, they can keep the cost of finance to an absolute minimum.
Using online platforms, companies can trigger and repay the borrowing themselves, at the click of a button, handing them ultimate control over their finances. This is far more flexible ̶ and considerably more cost-effective ̶ than the traditional invoice finance solution of borrowing against an entire sales ledger, which usually involves paying fees for the entire duration of the contract, without regard for the extent of the borrowing needs.
The benefits that technology developments are presenting to SMEs do not stop here. The data documenting customers’ credit status can also be used as the basis for sending out customised, automated reminders for outstanding or overdue invoices. This can streamline businesses’ credit control and debtor management and act as an effective means of tackling the perennial late payment problem that often afflicts SMEs. Such automated debtor management platforms have been shown to save businesses up to 80% of the time they traditionally spend chasing unpaid bills.
At a time when capital constraints and regulatory compliance are restricting the ability of banks and other traditional providers to lend to SMEs, fintechs, born of the digital revolution, are plugging the gaps. The way their services are delivered is comparable to the enhanced user experience nowadays in retail and social media, with users choosing to access services and information conveniently, at their point of choice.
Indeed, these are financial services to support businesses in the digital age ̶ above all, freeing them of the constant worry of how to bridge the next cash flow gap and allowing them instead to concentrate on running a successful business and driving growth.