19 Jan3 ways FinTech might help small and medium sized business

This week’s post is inspired by an article in the Times: “Too posh to pay: now suppliers attack Waitrose”. Old story, new song. This is about payments and when bills get paid.

The villain is Waitrose, which is a grocery chain and part of the well known John Lewis Group. They are taking 3x longer to pay their suppliers than rival Tesco.

Years passed, my father had a small printing business. The UK bank, NatWest, was one of his clients. As ever,he had chase every payment. My father called NatWest, where his small firm was a client. They said that they operated “like any other business”. They paid those who “shouted loudest”. Upset at the way big business was treating its community, my father voted with his feet and moved the business.

As an Ops guy, I fully subscribe to the notion that “what gets measured, gets managed”. I know how much pain my father’s business suffered at the hands of its own bank all those years back. My sense is that a few magic ingredients here might make the world go round a lot faster.
Imagine if we were able to combine some simple things:

Governments should impose a reporting and publication rule on all businesses. This would include disclosure of  payment performance in near real-time. It would cover both amount outstanding with values and quantities. Maybe there is a threshold for size, but leave that aside. Worth a thought if you consider all the reporting that banks have to do.

Businesses would have a platform that supports the supply chain. This would enable tracking of purchase order, terms, evidencing of delivery and the actual acceptance of goods. This will need to use a well know practice from banking; matching. All  parties will need to make input to ensure the transaction has been agreed.

Three reasons why this would be a great thing:

#1: Transparency will lead to payment improvement
If payment performance is readily visible, then there is a chance behaviour will change. Not much different from publishing statistics on schools’ performance.

#2: Supplier Financing will become easier to arrange
We used to call this “factoring”. Sell your future receivables for cash now, accepting a discount. That discount is a function of interest rates, uncertainties about when payment will actually be made and default rates.

The better the data and the more visible it is, the better the pricing.

#3 Efficiency will lead to more business
If there is one platform, then improvement will be possible across the whole process chain. From agreeing the contract, to agreeing that goods have been delivered and the actual payment. This will free up resources and working capital, contribute to better prices and drive more business.

The right platform and process can have a major impact. Easier access to financing and better terms for those who need supplier financing,

Lessons Learned:
There are already efforts to innovate in this space. In South Africa, SCF Capital Solutions are using a special purpose fund for SME’s. This creates an investment opportunity and it also increases the pool of working capital available to SME’s.

Small and Medium sized businesses are the bedrock of every economy. Efforts to make it easier and cheaper for them to do business will create jobs and drive growth.

Improvement will come from better platforms, better processes and the transparency offered by a combination of Big Data and Fintech.

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