For SMEs, fintech solutions really can deliver faster payments
The technology-driven always-on, real-time world of trade and communication has been a reality for a couple of decades already. So how come the traditional supply chain is suffering from so many fundamental, but unnecessary inefficiencies relating to the transfer of data? You would think the supply chain is the perfect playground for innovation and disruption, with its many moving parts, participants, and potential for automation. True, some links in the supply chain have been early tech-adopters, some even spearheading the use of new technology; we see logistics is fast becoming the poster boy for real-life blockchain applications, and credit scoring is getting a makeover with the use of AI. However, it’s time for technology to really tackle the friction created in the supply chain around invoice approval and late payments.
The desire for faster payments is particularly strong in the SME sector. Since small and medium enterprises usually don’t have the luxury of deep cash flow reserves, they are disproportionately affected by the friction caused by inflexible payment terms, manual invoice handling and late payments. This is in no one’s interest.
I believe we will soon see a move towards open-ended payment terms, where the supplier and their customers will use their respective cash flow positions and working capital requirements to agree the optimal payment date for particular receivables. With electronic invoicing digitising the paper process, with fully automated invoice approval, and fintech platforms working with the banks to create nimble financing options, SMEs can gain control of their own cash flow. They decide when they get paid, against offering a more flexible pricing and discounting structure for the goods or services provided.
For example, when working capital is tight, a supplier can determine – either manually or via automated rules set in their portal or app – to get paid, with a discount, within a few days of submitting an invoice. And conversely when cash position is sufficient, the supplier can let the payment term run for longer against a higher price. If the buyer agrees to using their own, typically superior credit rating as the basis for financing, the SME gets access to low corporate rates, and all via a financing tool that is as frictionless to set up and use as buying a book online.
Big fintech platforms like Tungsten Network’s have thousands of firms of all sizes transacting on their platform every day, using automated tools and simple interfaces to trade without friction. By connecting them to large funders eager to finance without the cost of directly managing all those small firms, the fintech platform becomes the piece in the puzzle that enables the supply chain to remove one of its largest sources of friction: the late payment.