Small businesses are the lifeblood of the UK economy. According to the Federation of Small Businesses (FSB), small businesses accounted for 99.3% of all private sector businesses at the start of 2018 and 99.9% were small or medium-sized (SMEs). Total employment in SMEs was 16.3 million, 60% of all private sector employment in the UK, and the combined annual turnover of SMEs was £2.0 trillion, 52% of all private sector turnover.
Yet small businesses are still not able to compete on a level playing field with their larger enterprise peers. One of the biggest areas of disparity is the disproportionate impact that late customer payments and unpaid invoices have on smaller, more vulnerable organisations.
A survey conducted by small business finance provider, Liberis in March 2018 found that at that time small businesses across the UK were still chasing £14.9bn in late payments resulting from goods and services they had provided. The study claimed that on average respondents were owed £11,000, which extrapolated to £14.9bn across the UK’s 5.7 million small firms.
Small hospitality and leisure businesses are not immune to these trends. A recent survey from Hitachi Capital Business Finance found that 45% of small businesses in the hospitality and leisure sector were dealing with late and non-payment. Catering businesses know the issues only too well. It can be very difficult to tackle the issue of late payments especially if the worst offenders are large businesses that are also amongst their biggest customers. For the smallest most vulnerable organisations the negative impact on cash flow often has a serious impact on the business and can even in many cases prove fatal and result in a bankruptcy.
Yet, this plague could be avoided. A solution already exists to the problem of unpaid invoices: credit insurance. By insuring their invoices, businesses can recoup what they are owed even if the customer does not pay or goes out of business. In the past though, small businesses, including those in the catering and hospitality sector, have often struggled with getting east access to credit insurance.
Today’s credit insurance policies are just not set up to meet the needs of small businesses. Typically, they are based on expensive ‘whole turnover’ policies, meaning all invoices are automatically – and unnecessarily – covered, and sold via inaccessible channels such as brokers and offline.
That’s tended to preclude a large part of the market from taking them up. Recent figures from the Association of British Insurers indicate that there are just under 14,000 trade credit insurance policies in place in the UK. Most of these policies are likely to have been sold to large businesses. Very few, if any, to the small, often cash-strapped caterers who might be among those most in need of these kinds of services.
The truth is that historically, lured by the promise of high commissions, credit insurance providers and brokers have ignored the small business market in favour of large corporates. As a result, small catering businesses often display a complete lack of awareness about credit insurance. And if and when they do find time in their busy schedules to look into it, they often come across offerings completely unsuited to their needs.
Fortunately, help is now at hand. We are now seeing fintechs joining forces to protect small business owners, including catering entrepreneurs, from running into cash flow problems through missed or late payments. A new brand of invoice protection is coming on stream, that allows small catering businesses to quickly and efficiently pick and choose the invoices they want to protect.
Rather than simply insuring all of their accounts receivable, they can be selective and choose which invoices they want to protect based on criteria like: Can I afford to write-off this invoice? Do I trust this company? Am I comfortable with how this business trades? Once they have decided, caterers can then purchase and pay for invoices individually through a simple tick-box process at highly cost-effective prices per invoice. By partnering and integrating payment protection with banking and accounting apps that many caterers are beginning to adopt, for example, they can further streamline the experience for users and expand its reach across the hospitality market.
That is a hugely positive development. The health of the economy as a whole depends on the dynamism and entrepreneurial spirit enshrined within many SMEs. Small catering businesses are a key part of this. It is important that they not only survive but thrive. The latest breed of insurance protection insurance tools allow them to do just that by giving them the peace of mind to stop worrying about their finances and focus instead on delivering the best possible customer service and building positively on their business success.
by Andrew Garvey, chief operating officer at banking and accounting app for freelancers and small businesses Countingup and Richard Thomson, co-founder of Hokodo, a technology company that aims to make financing and insurance available to SMEs