Technology and business
Tony Duggan 17 Aug 2017 03:10pm

How Fintech is disrupting supply chain finance

UK businesses are currently grappling with a late payments endemic, one that is creating a working capital crisis in the UK.

Crossflow’s recent findings highlighted that a staggering £266bn of SME turnover is locked up in late payments, the equivalent to 15% of average annual turnover.

This crisis is being further compounded by increased diligence by HMRC in tax collection, with HMRC collecting £3.5bn from SMEs for under-payment of VAT in 2014-15. While HMRC rightly seeks payment, the actions of businesses in paying tax late are reflective of the struggle they face to stay afloat and juggle working capital.

SME working capital is being severely constrained, which has far-reaching ramifications for the UK economy as a whole, given that SMEs make up 99% of UK businesses. Brexit currency fluctuations are also driving margin volatility, with up to £31bn of profit margin lost due to currency volatility at a time when SMEs need the funds to invest and grow.

Such findings may come as a surprise, as supply chain finance options do exist and have been around for some time. However, UK banks withdrew £5bn of overdraft facilities available to SMEs in 2016 alone. The Funding for Lending Scheme – intended to support SMEs – has also been starved of £55bn over the same period.

Over two in five (43%) of SMEs are also frustrated with the high cost of finance, and over 25% of SMEs are discouraged by the complicated nature of the transactions, the slow release of funds and the requirement to provide personal guarantees.

However, things are beginning to change. Conventionally dominated by banks, the supply chain finance market is expected to grow by 15% in the coming years in terms of revenue, and is ripe for Fintech providers who can leverage new technology to transform access to supply chain finance for corporates and SMEs alike.

Where traditional banks have been slow to act, Fintech platforms such as Crossflow Payments have developed, connecting corporates and SMEs and providing access to competitive non-bank sources of finance, such as pension funds, and using the corporate’s credit rating instead of requiring personal guarantees from the SME.

Fintech platforms have found innovative ways to address barriers by combining deep credit expertise with technological knowhow. This allows SMEs to access outstanding invoices and secure payments within a matter of days, not months. Corporates also benefit from seamlessly integrating their IT systems across their supply chain, increasing efficiency and facilitating growth.

Our recent partnership with Maplin Electronics – funding up to £360m of payables to over 100 suppliers – is testament to the appetite amongst CFOs to utilise Fintech services to bolster the financial health of their supply chain and support growth.

It is clear Fintech platforms can play an active role in fuelling business growth currently stifled by a lack of working capital. However, more must be done to drive awareness among corporates and SMEs alike of the potential that can be realised by leveraging Fintech solutions.

It should no longer be the case that in 2017 businesses still struggle for working capital. With a solution to the problem now in sight, it is time to transform supply chain finance for good.

Tony Duggan, CEO and co-founder of Crossflow Payments