We are living in the on-demand economy. We want our taxis on-demand, our food on-demand and our movies on-demand. Sadly, for small businesses, this does not translate to getting paid on time. And in a market where cash flow sometimes determines whether a start-up will make it to the next month or not, late payment could be fatal.
Small and medium-sized businesses (SMEs) currently face an average of £38,186 per firm in unpaid invoices. A recent Bacs Payment Scheme survey reveals this totals £40 billion as a whole. One in four of these businesses proclaim that should this figure exceed £50,000, they may have to close down altogether.
It therefore comes as no surprise, that many small business owners have been plotting the death of the invoice. The infamously sluggish and formal nature of this invitation to tender has not evolved in-line with the needs of the SME market. As a result, there has been a surge in technologies and new currencies designed to expedite the payments process.
Smart and innovative methods of money transfer are now keeping businesses alive and helping company founders focus on their top-line goals. Accounting software, Xero, for example, enables businesses to see real-time snapshots of incoming and overdue payments. The product facilitates the sending of immediate one-click payment invoices, and counts KPMG as one of its key devotees. It is quite possible that in the near future, your company accountant could be reduced to nothing more than a .com.
Such technologies have even given rise to secondary products such as Satago, which automates periodic reminders to creditors until it sees the money come into your Xero account. The company claims that receiving an invoice late or not at all (due to loss or error) comprises 44 per cent of all excuses given to small businesses awaiting payment.
Heavy workloads have made it difficult for smaller businesses to keep on top of credit control, but software such as this could phase out credit departments altogether - saving money in the longer term.
In addition to replacing slow processes and human labour, there have been some technological advances that create facilities that were not even possible before. In our own business at Hubble, we have found GoCardless to be a lifesaver. Rather than scrambling to get together a client’s bank details or, worse, drag yourself down to the local bank, GoCardless allows any business to take payments directly from the bank account of customers in the UK and Eurozone. Such seamless and well-integrated technologies have meant payment terms between businesses have become increasingly fluid and standardised. The question of waiting for an invoice doesn’t even come up.
Products such as this and Richard Branson-backed Transferwise allows the moving of money whilst removing hidden transaction fees and costs. Banks that traditionally charged high fees for transfers no longer have that autonomy as inventive substitutes that use technology to circumvent the banks, have levelled the playing field. SMEs no longer must be held to ransom by slow and bureaucratic international money transfer services just to do their standard business.
It can even be argued that the death of the invoice can lead to more ethical business. Payment terms on invoices are often used as excuses by businesses to delay paying for as long as possible to protect their own cashflow and sometimes they are driven to this behaviour by saying "that everyone else does it to me". Automatic and quick payments between businesses could break this vicious cycle forever and promote better collaboration between business communities.
Late payments have traditionally forced small businesses into tough positions and awkward conversations. However, as the number of UK start-ups continues to boom, so do the range of tools developed to help those start-ups do business. Critics have argued that such fast-track solutions might deteriorate attention to detail, but if it means that small businesses are no longer at risk of failing - then it can’t be a bad thing at all. Oh, and we can really save the planet by printing and posting less invoices that no-one ever reads.