Turning big business into an enabler of SME growth – Damian Crowe, August 2015
The Small Business Conciliation Service is being created as part of the Government’s Enterprise Bill because late payments are a major economic problem, widely acknowledged to have cost UK businesses over £32bn in the past year alone.
So imagine the perfect situation whereby an SME could be paid almost immediately upon invoicing one of its big company clients and pay a low cost for the privilege. Such a scenario has the potential to release billions of pounds into the UK economy and provide the required working capital to fund significant SME growth.
Whilst it sounds like a pipe dream this is exactly what we have been working to achieve at Obillex by addressing two major barriers – high cost charges for early payment and getting buyers and suppliers systems to talk to each – known in technical jargon terms as interoperability – to speed up invoices through the procurement system.
A key part of the problem is that many large organisations work with banks and enterprise proprietary software vendors who seek to dictate terms to the detriment of small business. Most senior decision makers are simply not aware of the impact on SMEs of the lack of procurement system interoperability of these vendors’ solutions. The Government has already begun to take important strides to simplify their own buying systems so that SMEs (traditionally shut out of large Government contracts) have a single point of entry. These open standards are being emulated across Europe, and the Pan-European Public Procurement Online (PEPPOL) service has been an important case study of the benefits of an interoperable system – just ask the NHS which now uses it.
Too often big businesses use finance systems to lock in their SME supplier relationships, and lock out competitors. With some banks using business payment systems that charge upwards of 20%, SMEs would be better off using their credit card to fund their working capital. Similarly, with failed e-invoicing project after project is it any wonder that many SMEs revert to the default of posted paper invoices?
At Obillex, we have developed a business finance solution where big business can embrace open standards and procurement systems that talk to those of their suppliers in a digital environment in order to drive operational efficiency. This is because we have developed a financial instrument that is system agnostic – meaning it can be deployed across any e-invoicing, ERP or accounting system. So now an SME can simply press a button to process their invoices through a digital environment.
Our financial instrument has also focussed on addressing the critical issue of accessing finance as cheaply as possible. We have achieved this by leveraging the credit worthiness of the big business buyer to attract investors to put up funds that enable almost instant payment of an invoice in exchange for a small fee. The fee level, which is the key, is due to the low investment risk involved in the transaction.
So the ideal scenario is no longer a pipedream. Instead, the perception of big business can now be transformed from foe to friend when it comes to their dealings with SMEs by playing a pivotal role in providing them with low cost funding and the working capital they need to thrive and grow.