Proving the link between e-invoicing and access to finance
In the last of his three guest blogs (read the first and second), Emmanouil Schizas, Senior Economic Analyst at the Association of Chartered Certified Accountants (ACCA), and a participant of the statistics working group for the European Multi-Stakeholder Forum (EMSF) on e-Invoicing, explains how the UK’s SME Finance Monitor Survey could show how e-Invoicing is helping businesses gain easier access to finance.
The restriction on access to fresh finance for businesses has been a key and recurring theme of the economic downturn. Companies in the UK, both large and small, have regularly turned to policymakers pleading that difficulties in securing new finance from banks is a significant barrier to new investment and growth.
It is therefore hardly a surprise that the UK government, like many others, has this topic at the top of its political agenda. Given the role that we believe e-Invoicing can play in helping businesses secure new funds, this presents us with an opportunity to swing the full weight of government behind the promotion of e-Invoicing.
To do that we must prove the link between e-Invoicing and easier access to finance. Until recently this has been difficult but we may now be able to do so with new data from the quarterly BDRC SME Finance Monitor Survey.
Presenting a better risk profile
Anecdotally we’ve always found that businesses who have adopted e-Invoicing present a better risk profile to their potential lenders. The SME Finance Monitor data confirmed this. The data also suggested that e-Invoicing adopters are, with other thing being equal, faster growing businesses. And while they might face greater cash-flow pressures and higher liquidity needs, the use of e-Invoicing can help protect them against late payment or even ensure earlier payment through invoice discounting. Indeed, adopters are six times as likely to use invoice discounting as the general population of SMEs. Financial institutions like the certainty that e-Invoicing can deliver and how it provides business with some insulation from a hostile cash-flow environment.
Politicians, however, don’t put resources behind anecdotes; they want easily digestible hard facts before they’ll commit. Our intention is that the UK’s SME Finance Monitor Survey will deliver those facts. We have already started to make the link between businesses applying for finance and those who have adopted e-Invoicing, but it will take time.
Despite the massive sample from the survey, active demand for finance is currently very weak so it cannot provide a good sample of applicants in a single quarter. For instance, from the data collected in the first survey that ran our question on e-Invoicing take up, of those businesses we considered ‘true’ adopters, 37 made overdraft applications and another 18 applied for loans. Realistically we will need 10 times that number before we can draw valid conclusions on the link between e-invoicing and application success. But we are confident that we will achieve this as the data build over time.
Government is seeing the same picture
The good news is that the government is already interpreting the findings in much the same way as we are. Similarly, the British Banking Association is keen to see how the study’s e-Invoicing findings evolve. Quarter by quarter we are delivering a watertight case for the part that e-Invoicing can play in helping businesses tap into new sources of finance. Proving it beyond doubt could clear one of the final hurdles blocking widespread e-Invoicing adoption. Watch this space.