Thursday 7th March, 2013

Banks – what are they good for? Well, for a large proportion of UK business – “absolutely nothing” would be about right. Despite various initiatives – including the negative inflation recently proposed by Deputy Governor of the Bank of England – banks are still reluctant to lend to SME businesses. The figures, for them, simply do not stack up. So, with suppliers being squeezed by extended payment terms, and banks giving them the “waiter’s eye” – many businesses are faced with an increasingly difficult working capital crunch.

In the past, businesses would have been limited to traditional supply chain financing arrangements such as factoring to take the pressure off and the wolves away. That is, if the banks involved were sure of a lucrative enough incentive for them in the deal, and if the business qualified in the first place...

Invoice financing has been a boom industry in the UK since 2008, but those organisations left with nowhere to go start to look around – and the best of them start to get innovative. And often, that’s where technology comes in. With the growth of collaborative networks, organisations have realised the power that lies within their supply chain. We live in a Facebook, Amazon world – and it’s one where increasingly, activities previously regarded as the preserve of the banks, including lending and supplier validation, are now taking place peer-to-peer – across their networks.

In other cases, organisations are looking to the technology which has sprung up in the last few years in response to both recognition of the value of these networks, and, since the start of the economic downturn, of a gap in the market for better access to finance. This combination, together with the growth and application of cloud technology has come at a perfect time for vendors such as Ariba, Taulia and OB10 in their roll out of solutions such as dynamic discounting and express payments to address these issues.

With the technology sitting in the cloud, there’s also a level of visibility that simply wasn’t available before – leading to tighter compliance and efficiency levels. If the banks have been slow to respond to the challenges of the networked economy – to be fair to them they may well have had their eye on other things. And the signs are that some banks – the RBS for example - are waking up to the opportunities which lie in front of them, which can only be good news for struggling businesses. Many of which are  faced with a hobson's choice between cutting relationships with important, but late payers - or accepting crushing terms of up to 200 days…

The alternative of course, is to do business with someone like the Bank of Dave – now there’s an innovative approach to banking – actually lending money to businesses which need it…