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HOW TO OVERCOME THE CASH FLOW ISSUES PLAGUING TOO MANY BUSINESSES

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Ian Duffy, CEO of Accelerated Payments

 

Cash is the lifeblood of any business, but cash flow issues haunt even the best-run companies. According to JP Morgan Chase Institute research, the average business has only 27 cash buffer days in its operational runway. If cash stopped flowing in, then within a month, most companies would not be able to cover rent or make payroll.

Smaller businesses have typically battled to collect prompt invoices from larger companies, as larger companies often use their market power to force concessions. This has only been made worse by the pandemic, with the number of unpaid bills almost doubling throughout the UK at the height of the COVID-19 pandemic.

When larger businesses do not promptly pay invoices, it is not usually for lack of funds. Instead, it stems from inefficient payment structures and the failure to accurately track or analyse data from suppliers. Many accounts payable departments still run on paper, with paper invoices being costly in terms of storage and riskier than digital records.

Invoices filed inaccurately can take a long time to track down. Invoices with incomplete information can automatically get blocked, which means that accounts payable departments cannot keep their original payment schedules. Most commonly, there can be slow approval processes, which lengthen payment turnaround times.

Electronic invoicing, also known as e-invoicing, addresses these issues. E-invoicing is the exchange of the invoice document between supplier and buyer in an integrated automated format. Digitising systems allow automation, converting manual flows into instant and computerised tasks and increasing payment processing speeds of every workflow.

The global market for e-invoicing is set to grow to £516 billion by 2024, largely due to widespread government adoption and technological innovation. As governments in many countries look for a way to tackle tax loss, they have started enforcing regulatory paths to encourage adopting the e-invoice practice. EU member states have brought in mandatory e-invoice legislation for public procurement.

Tech start-ups are also introducing new, practical solutions and making e-invoicing a cost-effective billing tool. Web applications allow a more robust user interface, enabling online submissions of invoices in multiple formats, increasing the adoption of e-invoicing across businesses of varying sizes and geographies.

While e-invoicing helps businesses better control their cash flow, it ultimately does not solve the root of many companies’ problems around late paid invoices. Sending automated reminders is one thing – but actually getting the liquidity into the bank to keep things moving is a game changer that can keep a company from going under.

According to the UK banking platform Tide, the pain inflicted to businesses by late payments is chronic and widespread: on average, one in six small business invoices are paid late. This varies between industries: small businesses operating in the IT and telecoms sector see payments arriving 12 days late on average, while small businesses in media (such as marketing, advertising, PR and sales) see payments arriving over 30 days on average.

However, if businesses have never-ending late invoice problems, e-invoicing will not ultimately be the only solution required. E-invoicing can manage the issuing and reminding of invoices but cannot guarantee prompt payment, as there are only so many late reminders that can be sent.

Instead, companies are being forced to be more innovative about how they collect payments. Some businesses have started offering discounts to encourage on-time payment.  Other methods include changing how a company pursues unpaid invoices and the payment channels it will accept. Email and digital channels tend to be more effective than phone calls as employees continue to work from home. Subscription models can also lead to more reliable payment.

Another innovative approach to tackling the issue is single invoice financing. Single invoice financing helps small businesses get advances on cash they are due from specific individual invoices. Single invoice financing companies tend to work flexibly with an SME, choosing how many and which invoices they use. This provides easy access to funds without incurring fees on every invoice or financing an ongoing credit line.

Accelerated Payments Limited (AP) for example provides such a service in several European and North American markets. AP’s technology platform can streamline the settlement of invoices between suppliers and buyers as well as offering suppliers the option of funding some or all of these invoices. This gives suppliers the option to dynamically match working capital needs with a line of funding from invoice financing. AP is also planning to launch a service during 2022 that will allow third party e-invoice providers to use AP’s invoice financing module to provide their clients with invoice financing services.

The model works particularly effectively for smaller businesses that might be providing services for industry giants or larger companies with complicated organisational structures and approval processes. Companies that take advantage of the freedom and flexibility of invoice financing do not just use the funds to survive but can also thrive and scale, as they can simultaneously access credit or traditional forms of investment for further growth.

As more companies are paying attention to how they address the cash flow issues arising from late payments, they are also examining the broader context and addressing how to fund future goals around hiring, technological investment, and expansion. This is where invoice financing can go beyond a short-term solution and be a critical factor in long-term growth.

 

Business

The perfect storm: new regulations and an inflationary environment will cause an upswing of M&A and consolidation

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By George Netherton, Partner, Head of Europe Insurance & Asset Management at Oliver Wyman

 

As Q2 results roll in, we’re beginning to see the impact of the perfect storm of challenges facing the UK personal lines insurance market. The effects of significant regulatory changes, heightened inflation, and macroeconomic uncertainty have so far largely been hidden by profits achieved during the pandemic; however, they are gradually being unmasked. The next two years will be tough, and we expect significant market shifts to result.

 

The challenges

The beginning of this year saw major regulatory changes brought in by the FCA. Welcome reforms aimed at creating a level playing field and ensuring good value for money for loyal customers, have nevertheless pushed up premiums for new customers and reduced profits in the back books of many insurers. Those with large retained profits in their back books have reduced flexibility in attracting new customers now, and we are seeing some overdue investment in innovation, particularly around electric cars.

As materials, labour, and energy prices rise, inflation challenges are not only being seen in insurers’ cost base and claims value chain, but are running far ahead of expectations. The motor insurance market, for example, has experienced significant levels of inflation in the first half of 2022, resulting from higher used car prices, higher third-party claims costs, longer repair times and inflation in the cost of car parts. As a result, profitability is dropping sharply.

Climate change is also hitting the market, with more extreme weather events, such as storms and heatwaves, becoming more frequent and expected to result in increased claims for flood damage, subsidence and even wildfire. In the first half of 2021, global insurers paid out the largest amount of claims in 10 years to cover the damage caused by natural disasters. Insurers are also facing costs for developing net zero and transition plans, as climate commitments are prioritised and scrutinised.

In addition, the cost of technology and data investment is becoming an increasing burden. Weaker businesses are struggling to justify big investment costs, yet are struggling for competitiveness without them.

 

The impact

Traditionally, insurance has been a stable business with balance sheet reserves reducing volatility and creating room for manoeuvre. This has meant that some in the market have in effect been ‘zombie business models’, not creating economic value for shareholders but still writing some new business, nursing a backbook and hoping for better next year. Insurers can give the impression of health long into their decline and several that were on their way-out pre-pandemic were able to rebuild their reserves to some extent as lockdowns created unexpected profits from motor portfolios. However, the tide is now going out and the recent market changes will make it very difficult for unprofitable outlets to survive. As the market settles into the new ‘rules of the game’, we expect to see some significant changes.

We predict the market will rationalise down to a smaller number of players, consisting of some rejuvenated major players and some low-cost digital attackers. Many Tier 2 and 3 insurers may withdraw from the market entirely, consolidate their exposures or merge to reduce their cost base. Marginal players will be faced with the choice of significant investment to reach market leadership or narrowing to focus on defendable niches.

At the same time, we predict diversity and scale to come back into fashion. The decade of 2010-20 was dominated by the success of largely monoline businesses writing largely one product (motor) through largely one channel (price comparison websites). But this concentration is now proving painful. Diversification brings resilience and breadth of opportunity, and the companies recently announcing successful Q2 results are those that have been able to secure varied portfolios. Personal speciality businesses, such as pet and travel, will benefit from this as they become attractive opportunities for major players seeking diversification in tricky core markets.

Tough market conditions are a natural part of the insurance cycle, but the combination of factors experienced over the last year has been extraordinary. The challenges run deep, and the impacts will continue to be seen for a long time to come. Insurers need to continue to adapt to protect their operations, promote customer retention, and prepare for the future.

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Accounting software: the future is not what it used to be

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By Lyndon Stickley, CEO of iplicit; an award-winning accounting software developer


Escape your discomfort zone

US Navy Seals have a saying: “The only easy day was yesterday.” That sentiment could well be echoed by some of the FDs and CFOs we hear from.

Many are suffering (unnecessarily) in a discomfort zone that looks like this:

  • their old on-premise accounting software is unable to integrate with other true cloud applications, within their organisation
  • they resort to numerous time-consuming spreadsheet workarounds to patch ‘holes’ in their reporting processes
  • their teams have to manually rekey data to make sense of information from multiple sources
  • reports can take days and even weeks to complete – when they could take just hours
  • their desktop technology can’t cope with today’s efficient WFH and hybrid working
  • essential information is trapped on office servers (or even in filing cabinets) – but they need to access it remotely.

It’s not ideal – so why do they put up with it? What’s so bad that they’d rather soldier on with this sub-optimal status quo?

What’s worse than your outdated on-premise accounting software?

The cost, time and stress involved with upgrading to more powerful software – that’s what. Or so some finance professionals believe.

It’s not uncommon for them to worry that the cure could be worse than the ailment. That’s because of all the pain that they experienced the last time they changed their accounting software.

They can recount horror stories of paying tens of thousands of pounds for an annual licence and similar for implementation charges. But the software was so complex that even the experts took months to install it and customise it.

Back then, too many buyers had to endure a string of broken promises and missed deadlines – all of them bad enough to trigger nightmares, flashbacks and the occasional nervous tick:

  • the system cost twice as much as the quoted price
  • installation took twice as long as promised
  • it still didn’t achieve the intended result because it was so difficult to use
  • staff never truly understood the system or liked it.

And we sympathise because their concerns are based on bitter experience. Back then, they were the victims of a cynical software industry that revelled in putting them through the wringer.

The vendors made a fortune from overselling a sledgehammer to crack a nut…and then took forever to install it. All the pain simply meant higher profits for them.

But that was then. This is now…

Don’t get me wrong – there are still vendors out there peddling the old model by charging far too much and taking too long to install the software.

But the difference now is that there are alternatives. Sensible, readily accessible ones.


Don’t let the past define your future

You no longer have to repeat the misery of the past to end the discomfort of the present.

You don’t need the open-heart surgery of a high-priced corporate ERP system that takes a year to install. Now you can opt for the elegant keyhole surgery of mid-market true cloud accounting software – whether you’re an SME or a Nonprofit organisation.

Today’s mid-market cloud accounting software costs a fraction of the price of a big ERP system. And it can be installed in just 15 applied days – over a time period to suit you. The data migration, configuration, implementation and training can all be executed in bite-sized chunks – enabling you to continue with your day job and transition with minimal disruption.

So there’s no reason to continue putting up with the hopelessness of your existing on-premise accounting software. Your fears – though rooted in all-too-real past experience – are based on a future you’ll no longer have to endure.

 

The Devil you know is no longer worth knowing

Inevitably, ‘Better the Devil you know’ will never be a solution to the increasingly pressing problems posed by old and outmoded accounting software. At what point does prudence become inertia? If you choose not to decide, you still have made a choice; deferment is still a decision.  Both the saying and the software have a nasty habit of wasting money as well as time in the long run.

And, with every organisation requiring increasing levels of timely, actionable information, hindsight could show that doing nothing, in this instance, is the wrong decision to make.

The future is not what it used to be. Take a look.

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