it’s estimated that small and medium businesses in the UK alone are owed 67bn in unpaid invoices. Thats an incredible amount of money, but hardly surprising when the average small business has to wait an average of 72 daysfor invoices to be paid many suffering at the hands of large businesses which can afford it. There have been calls to outlaw late payment, and government says it will do more to enable SMEs to get hold of the money owed. Yet these measures ignore one of the biggest stumbling blocks to eradicating late payments the complexity of making payments in the first place.
Finding the root causeTo tackle late payments, the government cannot rely on legislation and guidance alone. It must understand why payments are so often delayed. Perhaps the biggest reason is the overly-complex and time-consuming nature of making business-to-business payments. While making payments has never been entirely straightforward, the complexity of payments technology and growth in alternative payments technologies is making life more difficult for organisations to accept and make payments. Firms are accepting payments through various mechanisms and a host of different providers, making it increasingly challenging for businesses to gain a clear and accurate view of their cash position. This bigger picture does far more to explain the liquidity challenges facing businesses than the easy narrative of risk-averse banks withholding lending. It also highlights how business leaders are not just the victims of the situation but also and through no particular fault of their own partly the authors of their problems. Read more about late payments:
- Five ways to avoid late payments from larger buyers
- UK suffers from late payment “epidemic” as most firms neglect suppliers
- How late payments became the driving force behind CreditHQ
Aiding money movementTechnology might lie at the heart of these difficulties, but it can also provide a solution. What is needed is a new approach to payments; one that focuses not just on supporting every conceivable method, from PayPal to ewallets, but one which treats accepting and making payments holistically, as part of a businesss wider financial environment. If that sounds a bit nebulous, let me explain. As every business owner understands, individual financial transactions dont happen in isolation. Making a payment to employees, to suppliers, or to the taxman isnt just a matter of taking a few pounds from the pot: it involves complex systems including banking, accounting, payroll, pensions, and a host of others. For too long, businesses have lacked the ability to integrate these systems effectively, so that the movement of their money can be controlled, monitored, audited, and accounted for. Thats not the fault of individual firms, challenged with implementing new payments technologies while ensuring that each remain compliant with financial regulations. Instead we must look to industry to provide a solution and help steer around the blind spots that exist. To be truly useful for businesses, payments solutions need to integrate with users existing systems such as accounting and finance and provide businesses with the ability to move money from end-to-end simply and efficiently.
The payments revolutionIntegration is one answer. By working smarter not harder using technology, smaller businesses can benefit from efficiencies that give back time and power. Time to focus on running and growing the business and power over finances. Yet the Holy Grail for small businesses lies in the ability to achieve a single view of the cash position something that large businesses have benefited from for years through tools such as treasury management dashboards. Having holistic, data-rich, real-time visibility of the money that is owed and future forecast not only empowers SMEs to make better decisions but could eradicate the small business liquidity challenge altogether. After all, businesses might not need to borrow short-term cash from banks if each had better visibility of and confidence in the own cash position and a better understanding of cash levers. Tackling the small business payments challenge is anything but easy. Yet the streamlining of age-old financial processes through smart technology means revolution is afoot. And thats good for everybody. Find out how Sage is revolutionising the way small businesses move money. Michael Carbone is managing director at Sage Payments.
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