B2B Payments

Solna On Moving Beyond AltFin To Tackle Late Vendor Payments

In the late payments battle, a popular strategy to ease cash flow concerns is to target the business getting paid late. Broadening access to trade finance and small business (SMB) loans can help small suppliers that face lengthy payment terms from their large corporate customers to ensure operations (and cash) flow smoothly even while they wait months to see an invoice settled.

However, while the alternative finance market continues to grow, late payments remain a massive pain point for small vendors.

Solna, a new U.K.-based business, told PYMNTS that there are other tactics that might be effective to combat late payments for small suppliers.  According to Inna Kaushan, Solna’s CEO and co-founder, though the rise of FinTech firms that link suppliers to external financing can certainly be positive for small companies, these firms must be transparent and borrowers should understand that taking out a loan or other type of financing is not their only option.

FinTech firms should “inform [SMBs] that financing invoices is not the only option or only thing required to end late payments,” Kaushan stated.

Solna’s debut on the market last April introduced other strategies that businesses could deploy. As an invoicing platform, the company allows suppliers to issue bills and support electronic payments straight from that invoice — which can support faster payments overall, as well as automated reminders that promote on-time payments without business owners having to manually follow up on outstanding bills.

Those automated tools can be “extremely effective” for SMBs, Kaushan said, but is certainly not a catch-all solution for late payments. Rather, empowering small businesses with information and data means suppliers can be proactive in their own financial health.

“[SMBs] need to do their homework and understand their clients’ ability to pay them,” Kaushan explained, adding that this not only helps a business understand whether they should be working with a customer in the first place, but supports the development of the right payment terms during contract negotiations. Previous payment behavior and credit scoring data offers unbiased insight into vendors’ customers, she continued.

Part of Solna’s strategy is to provide its users with this kind of data. With the U.K. government taking additional measures to combat late payments, it’s possible that FinTech firms may have an even greater availability of information about organizations’ accounts payable (AP) practices, particularly following the adoption of Open Banking and PSD2 regulations. However, policymakers’ efforts have their limits.

One of the most recent initiatives, announced earlier this month by Small Business Minister Kelly Tolhurst, saw the introduction of legislation to allow small firms to borrow against unpaid invoices. Presently, corporates’ supplier contracts are allowed to include a measure to prevent small firms from borrowing against those unpaid bills.

At the time, Tolhurst said the bill “will give small businesses more access to the finance they need to succeed and will help ensure that they have a level playing field from which to set fair contracts with the businesses they supply.”

Yet, while access to capital is important for small suppliers, the measure would not combat late payment practices directly  it would help SMBs manage the cash flow consequences of getting paid late.

Other government efforts in the U.K. include a Prompt Payment Code and a service that enables vendors to submit complaints about late-paying clients to the government. Both are voluntary, unenforceable measures, however, and according to Kaushan, such a characteristic means their impact on late payments is limited.

“A voluntary scheme that was launched to encourage larger businesses to pay their suppliers faster only addresses a small part of the problem,” said Kaushan about the Prompt Payment Code. “The code should go a step further and be mandatory for all businesses that turn over £5 million [about $6.6 million USD], with fines imposed on the worst offenders.”

She also pointed to the recent appointment of the U.K.’s new Small Business Commissioner Paul Uppal as another “step in the right direction,” though one that won’t mitigate the entire scope of the late payments challenge. That’s because there is an array of factors that can cause a vendor to be paid late.

Analysts often point to the credit crunch that resulted from the 2008 global financial crisis as a major factor behind why large organizations have more widely used their supplier bases as a way to extend capital float. However, other challenges can also be to blame, like unclear contract payment terms, a customer’s own cash flow issues, a small supplier’s lack of resources needed to chase down payments, and siloed and disconnected accounting processes between buyers and suppliers.

Broadened access to alternative and traditional finance, seamless invoicing and ePayments capabilities, and government support of on-time payments all help. For Kaushan, though, the true answer lies in changing the mindset and culture of B2B payments and vendor management.

“A cultural and mindset shift is needed, not only from the government and within the media addressing the issues, but from larger businesses, [SMB] owners and their clients, she noted. The market should no longer tolerate late supplier payments, and governments should enforce their initiatives with fines and penalties on late-payers, argued Kaushan. Plus, small firms should be armed with the insight they need to protect themselves.

She added, “We are a big believer that information is power, and that [SMBs] are best equipped to avoid late payments when they have access to the right information at the right time and can take action head on.

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