Indeed, recent research from Aldermore found that many SMEs still struggle to source appropriate finance to see them through the recession and fund future growth.
In light of this, the question arises of what the short term industry can do in order to prompt local business growth.
Oxygen’s recently-introduced Early Payment Programme allows buyers to pay suppliers more quickly in exchange for a cash rebate. One of the best-publicised uses so far allows local authorities to pay local SMEs far more efficiently in a move which could unlock £1.5 billion over five years.
Oxygen is currently working through a pilot operation with Oldham Council – potentially generating £2 million from a £73 million spend over four years -
though they plan to extend the scheme in the future.
Charlie Parker, Chief Executive at Oldham Council, said: "Our work with Oxygen to implement the Early Payment programme is helping Oldham Council to make significant savings over the next few years.”
Indeed, it’s believed that the process could unlock funds nationwide, through shortening bureaucratic payment processes and avoiding the high costs faced by handling council invoices, a process which can levy a charge of £70 per transaction.
Oxygen’s European Chief Executive, Roberto Moretti, explained: “Cashflow is the lifeblood of any business and SMEs spend an average of 14 days each year chasing payments – at a cost of £680 million.
“There are also examples of local authorities spending more money processing low value invoices than the actual price of the product or service they commissioned. Invoices cost a minimum of £70 to process and hundreds go through systems worth less than that.”
He added: “Local authorities alone in the UK annually spend between £172 billion and £175 billion on running expenses – and have quasi-AAA credit ratings - yet they waste money on a needless, slow, paper-based system of payments.
“Oxygen believes there is a better way to pay. It is time for local authorities to bring payments into the 21st century and capture the benefits of what they spend.”
Crowdsourcing lender Funding Circle recently entered in to an agreement with Lancashire County Council, starting a scheme through which local SMEs could gain a share of a £100,000 fund.
The initiative, which aimed to stimulate local economic growth and employment through improved access to business finance, has been well-received by local businesses and commenters alike.
B&C asked David de Koning, Head of Communications at the firm, what advantages Funding Circle can bring to local businesses. He replied: “The processes employed by banks are inefficient and outdated; with a bank loan it can take anywhere between eight and 12 weeks to get an answer to find out whether an application has been successful.
“Businesses on Funding Circle obtain access to finance when they need it. On average it takes just 12 days for a business to receive the funds they are looking for. We are fast, transparent and hassle-free – all the things a business owner is looking for.”
Speaking about Funding Circle’s current local authority agreement, David said: “Lancashire has been supporting local businesses for some time through other initiatives, such as their Rosebud programme. One of their key aims is to help their local economy to grow by enabling businesses to access finance.”
The Rosebud Fund provides local businesses with a flexible range of investments, ranging from £50,000 to over £1 million and available as both loans and equity-based solutions.
He added: “Lancashire County Council approached us; they recognised that Funding Circle is a better way of getting funding directly through to their local businesses.”
David went on to say that alternative funders were perfect to help out SMEs across the country, aided by the guidance of local authorities. He said: “There are hundreds of councils from across the UK who would like to directly support local businesses. Now, through Funding Circle, they can.”
Looking to the future, David concluded: “Since the launch of the Lancashire County Council partnership, we’ve been approached by more than half a dozen local authorities that have expressed an interest in joining the scheme. Funding Circle will be working closely with them and we hope to announce further plans in the New Year. We also believe other institutions, including universities, could soon be lending through us”.
“In time, there’s no reason why every local authority in the UK shouldn’t be able to lend directly to local businesses.”
It seems that the flexibility and alternative funding that is offered by many of the industry’s short term professionals could ultimately save time and, crucially, money for many of the country’s smaller firms. In the end, bureaucracy can cost both businesses and local governments thousands of pounds, an expense which with the innovative schemes offered by alternative funders, can be avoided.
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