So Wonga
has entered the business loan market and added to what is already a fast and
dramatically changing landscape. The introduction of services such as Funding
Circle and MarketInvoice have already had a big impact on how businesses can
source finance and the recent Breedon Report recognised that alternative
funding sources are here to stay. Couple that with last week's Bank of England
Trends in Lending report which said….. "The annual rate of growth in the stock of lending to UK
businesses was negative in the three months to February. The stock of lending
to small and medium-sized enterprises continued to contract….." and you can see why Wonga might sniff an opportunity. I'm
not sure Wonga is a good solution for small businesses strapped for cash but
it's little different to a small business owner funding his business using a
personal credit card or two, and that's been happening for years.
What
worries me more is the suggestion touted in the media and elsewhere that
solutions like MarketInvoice are a cure for late payment. They're not.
MarketInvoice allows a business to sell invoices to
a network of institutional investors and it can release the capital tied up in
those invoices in real time. In the short term it can therefore address the
cash-flow problem caused by late payment but it's not a cure. Payment still has
to be obtained and, if the invoice is not eventually paid, the amount will have
to be refunded to the investor.
The
problem as I see it is that – having obtained funding against the invoice(s) -
the business owner has removed the immediate cash-flow hole caused by
non-payment and can focus attention elsewhere. The problem hasn't gone away
though, and if there is a fundamental problem preventing payment it still needs
to be resolved. Let's not forget, and let's make sure that small businesses
don't forget, that the best way to avoid late payment is to get the basics
right: knowing your customer, agreeing payment terms in advance, invoicing
correctly and promptly, and chasing payment immediately it becomes overdue.
Anything that slows that process, or distracts from it, could lead to far more serious
problems; timing is all-important in the management of cash-flow and collection
of amounts due and, while attention is elsewhere, the slow-paying customer
could fail and become a bad debt rather than just a late payer.
Cashflow
keeps business in business and good credit management is vital to maintaining
that cash-flow. Mixing messages is not helpful.
