Tackling The Late Payments Problem

Across the pond, amid the “will they or won’t they” headlines centered on the Brexit and the aftershocks that may come, FinTech remains alive and well in what many payments industry observers deem one of the most innovation-friendly nations.

And yet, small and mid-sized businesses still struggle with cash flow, due to lack of timely payments.

As reported last week, ESF Capital signed a pact to provide £4.6 million in a combination of debt and equity to online lender Satago, which, among other things, offers cash flow solutions to SMEs. The funding allows the firm to launch its online credit control platform tailored for SMEs and also its invoice financing tools.

In an in interview with PYMNTS, Satago CEO and Founder Steven Renwick discussed the firm’s credit control platform. Among the options that are tied to the platform, Satago finances invoices that average around £2,000, Renwick said.

But more than that, the executive said, the introduction of software, especially cloud-based software, has been instrumental in leveling the playing field — in terms of monitoring businesses in real time and gaining insight into payments and cash flow — between large and small enterprises. “Big companies typically have been able to pay six-figure sums for licenses to technology and software that helps with credit control,” Renwick said, adding that “SMBs, on the other hand, have done credit control by email or Excel spreadsheets.” The end result is that true insight into a customer relationship is elusive and payments may be, too.

In fact, noted the executive, SMEs typically run a credit report upon first establishing new business relationships and then don’t do much afterwards. The mindset seems to be that, as Renwick put it: “Well, I’ve been doing business with this person for three years, and I know who they are and how they are doing.” And yet, there can, of course, be red flags missed due to complacency. The credit control features allow for continued tracking of invoices with automatic reminders to customers. For the users themselves, credit data is integrated with the firm’s sales data, which gives a sense of how payments and credit are working in tandem. In addition, the ability remains to suggest credit limits, internally, on certain customers. With invoices that are outstanding, said Renwick, who offered a hypothetical example with a ledger with £100,000 in lots of invoices to different customers, the analysis can estimate that £10,000 is at highest risk, £25,000 at medium risk and so on.

As for factoring/invoice financing, in the U.K., it is something that is sometimes necessary but not popular. There are lost revenues tied to factoring, with the implication that it is something that needs to be done in an emergency. But in reality, said Renwick, this is a tool that can be used strategically in cash flow management. As a single invoice finance provider, the firm advances 85 percent of the invoice value, which can help bridge gaps in cash flow or fuel near-term growth.

Renwick said that 95 percent of the firm’s customers do not use invoice financing, though they are aware of it and can opt in to that activity as needed. It is a good backstop to use, especially as 50 percent of invoices are paid late among SMEs, noted the executive, who added that the SMEs utilizing Satago’s offerings have been able to reduce days outstanding on invoices by up to 23 days, on average.

Renwick said that, looking forward, with a continued focus on cash flow management, the firm has enough data at its fingertips to create models for customers that can be used to identify and fix cash flow gaps and even identify and dynamically automatically finance the most appropriate invoice, though efforts in this space look to be about one year away.