“We want to back borrowers who know how to fight for survival.”
Davies, himself a serial entrepreneur and prominent welsh businessman, spent the first half of the year championing the sector and lobbying the government to open up its support packages to include alternative as well as mainstream lenders.
Those two announcements perfectly capture the lender’s twin strategy for 2021, both of using cutting-edge technology and keeping humans “in the loop” as part of its process.
“We've always argued at Just Cashflow that purely relying on algorithms to lend in the SME world is a recipe for disaster, you will lose your shirt,” explains Davies, who is executive chairman of Just Cashflow and chairman of the Association of Alternative Business Finance (AABF).
But the old-school long-winded approach doesn’t work in today’s market either “Look at everybody who lent in the latter part of 2019 and asked for a cash flow projection that went beyond March of 2020... they got it wrong.”
Indeed, the nearly year-long disruption caused by Covid-19 to countless millions of small businesses around the world is more than any algorithm or standard cashflow projection could ever have accounted for.
Instead, Just Cashflow is committed to a balancing act of tech plus talent, the human touch, which Davies admits does mean his company’s revolving credit facilities won’t be right for everyone.
One example of how Just Cashflow is using tech combined with the human touch is how Open Banking technology now accelerates many of the lender’s behind the scenes processes.
Borrowers, for example, can allow their bank accounts to connect directly to Just Cashflow which provides valuable insights into the state of their businesses. Or SMEs can still send statements the old-fashioned way as PDFs, but Just Cashflow is able to scan and digitise them into Just Cashflow’s dashboard in around 45 seconds.
With Davies’ origination partners like Funding Options also rolling out the same technologies, borrowers only have to grant or provide access to this data once for it to be tokenised and passed to Just Cashflow.
“I've got all this KPI data in a dashboard that enables me to see exactly what I think about your business, but now I still need to speak to you to understand on what basis you’re looking to borrow and how you plan to grow. Then I can make a judgement as to whether it makes sense,” says Davies, pointing to his team of relationship managers who contact Just Cashflow’s entire portfolio of borrowers at least once every 13 weeks to ensure they stay on track.
“There's no technology in the world that’s going to replace this type of conversation, so that's where we keep the human in the loop and invest heavily in their ongoing development.”
“We are known as a fussy lender, and we make no apologies for that, as bad debt is well below 1 per cent of loan book (even with Covid) and we have an almost 95 per cent retention of customers year on year so we're looking for a certain type of business owner to back,” he says.
The thesis behind Davies’ comments and strategy is that of the new businesses emerging in 2021, those which Just Cashflow is looking to support, many will have a besmirched record from the last 12 months of insolvency, possible administration or simply a lack of trading activity given the pandemic. But, in Just Cashflow’s view, that doesn’t mean they’re necessarily bad businesses to lend to.
“We have to accept the fact that there are going to be a lot of dissolved companies coming up,” says Davies.
“We want to find people who know how to fight for survival, there are lots of them, and the technology we deploy can massively help us spot them.”
Indeed, pre-Covid Just Cashflow developed its own AI tool to monitor Companies House, the UK database of incorporated businesses, something which has now risen to the fore both in spotting prospective borrowers who’re succeeding despite Covid, and to flag would-be fraudsters.
The rise of Bounce Back Loans, deferred VAT payments and accumulated losses will trigger a swathe of what Davies calls ‘Phoenix’ businesses, whose owners have accumulated debt only to declare their business Insolvent and incorporate a new business trading with the same assets as the last.
“The government must have known that this would happen,” says Davies. “The British Business Bank said to the government that these lending schemes are open for fraud and abuse, and they are.”
“Interesting is that I’m hearing on the grapevine that HMRC has now started writing to businesses asking for details of their accounts on the basis they applied for a BBILs [Bounce Back Loan Scheme]. I think we can all guess where that is heading” he adds.
Davies accepts that genuine defaults will happen, but this is where he brings the conversation back to Just Cashflow’s focus on the human touch and keeping in regular contact with his borrowers to help them manage their way forward.
“Ultimately, you will treat someone you owe money to differently if you have a trusting relationship with them, and judging from our Trust Pilot scores we forge great relationships with our customers.”
“As I often remind our team — when’s the last time you had a great relationship with an app? — make it personal.”