Three of the biggest challenges which prevent SMEs from investing in growth and often result in bad debts are tight cash flow, poor access to capital and the late payments crisis. With over £32 billion in late payments plaguing them, SMEs need longer-term and meaningful policy action from the government, alongside better Working Capital tools.
To ensure their continued success, SMEs need the next elected government to propose and follow through with measures to improve payment terms and cash flow. For example, enforcing stricter penalties for late payments from larger companies and incentivising prompt payment practices; such as the European Parliament’s legislation on combatting late payments, Directive 2011/17. Additionally, increased support for sustainable cash flow management practices, such as Invoice Financing, not only aligns with market trends but also enhances resilience for SMEs against future challenges. By prioritising the needs of SMEs, the next government can demonstrate its commitment to fostering a business environment that benefits the UK.
A Collaborative fintech landscape
Effectively addressing the pervasive issue of late payments demands not only stringent regulatory frameworks from the government but also proactive collaboration from the financial services sector. Banks and fintech companies play a pivotal role in equipping SMEs with enhanced access to efficient Working Capital tools while mitigating operational risks.
Embedded Finance emerges as an innovative approach to bolster SME support by integrating financial services directly into non-financial platforms. This integration empowers SMEs to seamlessly access critical financial services, such as instant credit, streamlined payments processing, and optimised cash flow management, thereby enhancing operational efficiency and financial resilience.
Looking ahead, the financial landscape is poised to experience significant growth in the number of partnerships between fintech firms, B2B lenders, and corporates. While there are existing collaborations between leading banks and consumer giants, such as Barclays partnering with Amazon to offer consumers flexible payment capabilities, we can expect an increase in similar partnerships in the B2B space.
As digital-native millennials and younger entrepreneurs increasingly dominate the B2B landscape, the demand for innovative B2B financial solutions is projected to surge. The evolving workforce blurs the lines between consumer expectations for financial tools and enterprise requirements, amplifying the need for adaptable, user-friendly financial technologies that can drive efficiency and growth.
Look forward: Opportunities and challenges
Embedded Finance within the B2B sector presents several promising opportunities for growth and innovation. Previously constrained by legacy systems, lenders can now offer a more flexible suite of digital financial services tailored to diverse customer needs. Collaborating with specialised service providers enables lenders to tap into new customer segments, offering services such as bank accounts, financial consultancy, and customised financial solutions that enhance revenue streams and customer loyalty.
For fintech partners and integrators, including those providing white-label products to banks, leveraging the trust and brand reputation of financial institutions presents significant opportunities for growth and expansion. Businesses adopting Embedded Finance solutions stand to benefit from enhanced customer experiences, streamlined payment processes, improved financial visibility, and increased flexibility through a range of Working Capital tools.
However, as the B2B finance landscape expands, concerns about fraud risks associated with financial transactions are likely to intensify. Advanced analytics and artificial intelligence will play a pivotal role in fortifying underwriting models and fraud detection mechanisms, ensuring robust compliance and transactional security in an increasingly digital environment. The government must ensure it balances compliance and innovation when deciding where to invest and drafting new legislation.
Government support needed
For SMEs to thrive, sustained and reliable access to cash flow is essential. Collaborative efforts between the government and the financial services industry are critical in establishing robust regulatory frameworks and fostering innovation in Working Capital solutions. Addressing the pervasive issue of late payments and providing adaptable financial tools can unleash the full potential of SMEs, driving sustainable growth and economic stability across the UK.
By prioritising these initiatives, political parties can affirm their commitment to SMEs as the resilient backbone of the nation’s economic landscape. Supporting SMEs with effective policies and innovative financial solutions not only strengthens the foundation of the UK economy but also fosters an environment where SMEs can thrive, innovate, and contribute to sustained economic growth for years to come.
