As viewers of our recent API Chronicles livestream will have heard, half of SMEs in Europe have between £10,000 and £75,000 tied up in outstanding invoices every month. It’s an incredible amount and undoubtedly places a significant drag on cash flow at lots of companies.
On top of this, many small businesses face challenges when trying to access working capital via traditional borrowing routes, with applications sometimes taking weeks and months to process. This is less than ideal if your business needs the money now.
However, the landscape is shifting as fintechs harness the power of modern lending technology to ease SMEs’ pains - and bring proven buy-now-pay-later (BNPL) convenience to B2B customers.
If providers are to succeed in this market, though, it’s vital that they have a thorough understanding of the trials and tribulations that go with running a small business.
In an attempt to help innovators build and launch relevant B2B BNPL propositions, Marqeta has spoken to hundreds of European small business owners in a unique survey on SME financing. Here’s some of what we learnt.
Small businesses carry the weight of the world on their shoulders
Of the 500 SME owners we surveyed, an unsurprising yet sizeable 38% said inflation and the economic climate were their chief concerns.
As well as these macroeconomic worries, lots of owners and managers are also shouldering the time-consuming burden of financial administration. For example, roughly 70% of respondents said invoicing was done in-house, either by the owner (21%) or an internal accountant (50%).
What we can see from this is that SMEs are spending time on tasks that could be easily outsourced, instead of focussing on their core business.
Additionally, while over half the businesses we surveyed were paid in 30 days, a worrisome one-third were waiting 60 days for payment from clients and the remaining 14% had to wait 90 days or longer.
Concerningly, our research findings seem to tell us that these late payments are preventing growth. For instance, 44% of respondents said they’d use the money to upgrade their technology and 40% would recruit more staff.
A further 28% would undertake marketing activities, 22% would expand their physical or online footprint and 20% would spend more with suppliers.
For some businesses, though, late payments are causing existential level stress, with 36% of SMEs surveyed saying that they would use the funds just to remain solvent.
When you combine all of these factors - the outstanding invoices and dependence on manual processes - it’s clear that a huge portion of firms are facing challenging circumstances that could be eased quickly with access to the right advice and tools.
Helping businesses understand where support lies
If our research provides a useful snapshot of the hurdles to growth encountered by SMEs, it also appears to demonstrate that buy-now-pay-later (BNPL) providers have much work to do in terms of raising awareness of their solutions.
A significant 43% of businesses we spoke to did not know that BNPL was an option and 25% thought it wasn’t for them. It’s fair to say then that this lack of market knowledge is impending take-up.
Providers should also be mindful of the following finding: 25% of SMEs felt BNPL was too risky. Clearly, there’s a need to dispel myths and misconceptions in some quarters too.
On a brighter note, we also learnt that BNPL terms, its complexity as a product and the number of providers in the market were not issues preventing businesses from using short-term borrowing.
It seems then that with the right approach to developing and marketing a BNPL solution, providers can easily place themselves in an advantageous position.
Innovators who are able to build, test, launch and iterate quickly and on their terms without dependencies on a third party can devote more energy to growing their market share.
Because just as modern finance products can hold the key to success for some SMEs, the payment platforms BNPL providers use will almost certainly determine the overall effectiveness of their offering.
To find out more, read Marqeta’s B2B BNPL: Small business financing done differently ebook here.
* In our next blog in this series, we talk to three small business finance specialists making a difference for SMES.
