How to get paid faster with a new scheme from Iwoca

Fairer payment terms can help small businesses rebuild post-coronavirus, according to iwoca.

Coronavirus’ effect on small businesses has been dramatic. Between 23 March and 5 April 2020, a quarter of all UK businesses (of which SMEs represent the majority) ceased trading, and over half of those that continued to trade saw a fall in turnover. Business owners are doing whatever they can to adapt and survive, but to rebuild effectively, small businesses need to embrace a fairer approach to offering payment terms. iwocaPay is a new product that has been built to solve this problem.

Going into the crisis, B2B small businesses were battling low productivity and late payments. Not surprisingly, the recent lockdown amplified these challenges. Not only have many businesses stopped trading, 40% of B2B respondents in our recent survey said they are owed more than £10,000 in outstanding invoices, and nearly a third aren’t sure they will get paid – making their future even more uncertain. Suppliers need capital to keep their businesses afloat but, unsurprisingly, customers are still looking for more time to pay.

A culture of long payment terms has meant that small businesses have been carrying a large trade credit risk for decades. Now, coronavirus has caused this unspoken trade credit risk to become a severe trade credit crunch, straining both cash flow and customer/supplier relationships. The pressure of this crunch is causing some small businesses to re-think whether offering long payment terms is worth the risk. More than a third of businesses who offer payment terms told us they are more likely to reduce their terms or ask customers to pay in advance in future.

There’s no quick fix for these issues, and building a more sustainable and efficient SME economy will take time. However, coronavirus can and should trigger a step-change for small businesses to become more efficient, productive and resilient. The first and most obvious change is to make payment terms fairer between suppliers and their customers.

iwocaPay: a better alternative

The problem with payment terms is how they have been adopted by UK small businesses. In reality, providing customers with an option to pay later or spread their cost is a powerful sales tool for suppliers. In the B2C space, Klarna—a global provider of consumer payment terms—says that average order values increase by 55% when customers can pay in instalments. So the question is, how can we make payment terms more balanced for both suppliers and their customers?

Existing alternatives, such as invoice finance and trade credit insurance, only partially address the imbalance between suppliers and customers. While invoice finance helps suppliers access liquidity, suppliers largely still bear the risk of non-paying customers. By contrast, trade credit insurance guarantees the invoice, but then the claim pay-out can be anywhere from 60 to 120 days after the invoice went delinquent, forcing suppliers to fill a cash flow gap. In addition, neither solution has a track record of adequately addressing the needs of the SME to SME market.

This is why we’re launching iwocaPay, which lets customers spread the cost of their invoices for up to 90 days. Built specifically for small businesses, iwocaPay gives suppliers all the advantages of payment terms, while mitigating the risk and inefficiency of chasing payments.

Suppliers get paid upfront while customers spread the cost of their purchases. Once the transaction is complete, iwocaPay takes on the risk of the debt so the seller doesn’t have to worry about non-paying customers.

Accountants and advisors are critical to ensuring SMEs invest effectively in their long-term sustainability. They provide business owners with a clear view of the short and long-term health of their businesses and identify tools and services that give business access to finance or financial information. In times like these, it’s even more important for accountants and advisors to recommend the most impactful products and services to their clients.

We believe that iwocaPay is an ideal tool to help small businesses rebuild after this crisis, and engaging with advisors is a key way for us to reach these businesses. We are offering members of the ICPA a free first transaction if they use iwocaPay. It is easy to set up for sellers and easy to refer for accountants and advisors. If you are interested in finding out more call 0203 778 0549 or email pay@iwoca.co.uk

• Thanks to iwoca for this article.

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