Monday, 17 November 2008

Early Payment of SME Invoices

Today the FT reports that "88 per cent [of traders surveyed] reported bigger companies not paying on time – a factor that 72 per cent said had a serious impact on their business."

Early this year I was involved in discussions about a way for individuals with surplus cash to enable SME's to get their invoices to big corporates paid early - and at rates that are competitive with SME's current financing options, represent a great return on people's spare cash, and allow big corporates - and the public sector - to extend their payment terms. This would be additional to SME's current financing options, rather than interrupting or replacing them.

The parties required to implement the necessary process agreed how it should work in detail. Their remaining challenge was finding the SME-facing brand necessary to market the service effectively. Early discussions with the perfect brand yielded some progress, but ultimately launch depended on another of their initiatives progressing.

One way it could work, in basic terms, is that the supplier offers to assign the invoice to Zopa or a collection agent for the benefit of the Zopa members who chip in to pay it early. Notice would need to be given to the corporate buyer to pay the invoice amount to the Zopa members' account. Someone at Zopa would also need to call the corporate buyer to ensure it was happy with the arrangement and confirm the date the buyer is promising to pay. That promised date could go on the invoice listing. Zopa members could then study the listing and decide what discount rate to offer (credit reference data would be available for those that want it). There would be an auction, so pricing would be very transparent.

There's another model that would work in reverse, with buyers posting invoices it's prepared to pay - with a promised payment date - to suppliers' accounts. The suppliers could then hit a "Pay Me Now" button that takes them to the Zopa site where their invoice could be listed etc. While that model is certainly technologically possible now, I suspect that it would follow once people got the hang of the supplier-driven process.

At any rate, if you're a supplier to big corporates who's frustrated by their extended payment terms, why not contact Zopa and say you're interested in either model I've described?

Maybe the continuing explosion of the late-paying problem, coupled with falling savings rates on people's spare cash, will hasten the implementation of this solution.
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