SMEs: FINANCING
Plugging the invoice gap Small business finance platform Iwoca saw an opportunity during the pandemic to address a persistent problem for SMEs – getting paid on time. Lara Gilman believes it could be the start of something big Not all heroes wear capes and those coming to the rescue of UK SMEs don’t have to be big, either. They just need to be clever. The COVID-19 pandemic has seen SMEs in dire need of support. A recent survey of small business owners by digital business financing specialist Iwoca showed that well over half (59 per cent) had used their own cash to keep their businesses afloat last year. Furthermore, 38 per cent of SMEs were concerned they would have to close their doors in 2021, such has been the economic impact of two very damaging lockdowns. That isn’t just down to revenue drying up, though. In many cases, businesses made sales, but they couldn’t collect the payments. That was brought home to Iwoca in the middle of the crisis. Since 2012, it has focussed on extending credit to SMEs based on revenue flow. During the last year or so it’s been busy distributing well over £200million of much-need government-backed support under the Coronavirus Business Interruption Loan Scheme (CBILS), too. But it’s now targeting a key area that blighted so many small businesses before the pandemic and became even more critical during it – invoicing. Its own research found that, during the first national
78
ThePaytechMagazine | Issue 8
lockdown, 40 per cent of SMEs had more than £10,000 in outstanding invoices, which clearly impeded their ability to survive, let alone prosper. So, it launched IwocaPay, which blends payments and finance to deliver the UK's first invoice checkout solution built for SMEs. Offering a pay now or pay later option on every invoice, it makes it easier for them to pay on their terms. Lara Gilman, co-lead at Iwoca, explains its genesis: “One of our services is the Flexi-Loan, which allows people to access cash flow instantly and easily. But this led to the learnings about why smaller businesses actually needed this facility – and the answer was their uncertainty around invoices. They either needed money to pay invoices, or to cover the gap for when they themselves needed their own invoices paid. We saw that we could make financing more accessible at the point where it was genuinely needed.” One side of the solution addresses how an SME might pay a supplier. Iwoca customers are offered a 90-day flexible option that allows them to spread the cost of bills, while their supplier still gets paid on presentation of the invoice – in effect, a pay-later function. This BNPL tool is part of the trend already established in consumer retail and now beginning to gain momentum in the B2B sphere. The second offering also leverages BNPL, but this time it addresses the eternal issue that SMEs face, which is getting paid in good time. IwocaPay gives its customers the facility to offer their clients an option to pay now or spread the invoice over three instalments for a fee. Either way, the SME gets paid the full amount on time, every time. There’s another issue it sets out to address, which goes to the heart of the payments revolution. “Right now, 80 per cent of B2B
businesses rely on bank transfers to get invoices paid,” says Gilman. “And the problem with bank transfers is they’re not that easy for your buyer; it’s one more reason that an invoice doesn’t get paid. In fact, we know that your invoice will get paid twice as fast if it has an online payment option. So, we also have a Pay Now solution. Together, these tools bring the best of payments and financing into the invoice checkout experience, which means we can help businesses get their invoices paid faster. “We believe this will have a huge impact on the economy,” she adds, “because unpaid invoices lead to bigger problems around late payments, around time lost, around inefficiency. Bringing a better payment solution to the invoice also helps to de-risk some of the cashflow issues around getting paid. We think we can have a meaningful impact on both small businesses directly and the economy as a whole.”
FREEING UP PAYMENTS IwocaPay is contributing to a much-needed revolution in invoice payments. Historically, the only option, other than bank transfer, was to use cards, which has significant, well-established drawbacks – mainly cost. With invoices of between £10,000 and £15,000, SMEs will typically be charged somewhere in the region of one to three per cent just to be paid. But open banking allows IwocaPay to provide a two-click solution that lets customers pay instantly, without sellers having to foot big card fees. Gilman says: “Cards were an incredible invention 40 years ago, but their business models were built off a much higher cost. “We don’t think you should have to pay just to move www.fintechf.com
