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iwoca launches iwocaPay to support businesses during payment crisis

As the government announced a £10bn trade credit insurance scheme on 4 June, small business lender iwoca launched payments solution iwocaPay which removes invoice chasing and gives small business customers flexible payment options.

iwocaPay removes payment term risk by offering customers flexible repayment terms, while immediately paying the supplier in full. Customers are offered a free 30-day payment plan, or can spread the cost over 90 days. The payment mechanism eliminates invoice chasing for the supplier with a non-recourse alternative, while helping customers manage their cash at the same time.

“Helping both suppliers and their customers manage cashflow, we believe iwocaPay will become a key tool to help SMEs have greater confidence as they get back to business,” iwoca head of ventures Lara Gilman told AccountingWEB.

How does it work?

According to iwoca, suppliers and customers can check their eligibility for iwocaPay in under five minutes with no paperwork needed. On approval, suppliers are paid in full for invoices between £150 and £15,000 when the customer opts to use iwocaPay, with iwoca’s page clearly stating: “We’ll never ask you [the supplier] for the cash.”

The customer can choose either the 30-day free payment option or a 90-day payment plan and are free to make payments at any point during the selected timespan.

How does it differ from existing finance?

“Existing alternatives like invoice finance and trade credit insurance only partially address the imbalance between suppliers and customers,” said Gilman. While invoice finance solutions help suppliers access cash, they still bear the risk of customer non-payment with most of these solutions. Trade credit insurance guarantees the invoice, but the claim payout ranges from 60 to 120 days after delinquency, leaving suppliers with another cashflow gap. 

“Neither solution has a track record of adequately addressing the needs of the SME to SME market,” said Gilman. 

Reason behind iwocaPay

Coronavirus economic pressures triggered a severe trade credit crunch for small businesses, putting a strain on cashflow and customers-supplier relationships, according to iwoca research.

A report issued alongside the new payment service suggested 40% of UK businesses are currently facing more than £10,000 in unpaid invoices, and one in four small businesses are worried they won’t survive into 2021.

Standard business practices put many firms into this position when the crisis struck, said Gilman: “The reality is that small businesses have been carrying around this trade credit risk for decades by providing long payment terms as standard practice.” 

According to iwoca, more than a third of businesses that offer payment terms are more likely to reduce their terms or ask customers to pay in advance in future. “There is a growing voice of small businesses who are rethinking the risk versus reward of offering long payment terms as a direct result of the credit crunch,” added Gilman.

As non-essential shops open next week, around a third of small business owners are considering reducing or not offering trade credit as they try to minimise their exposure to unpaid invoices. The iwoca study showed that trade credit was used by over a third (37%) of businesses. Any drop in access to trade credit could have “significant consequences for small businesses who rely on it and the wider sector”, it concluded. 

Implications for current financial issues

“Going into the crisis, the small business B2B sector was concerningly inefficient – battling low productivity and late payments,” said Gilman. Unsurprisingly, the recent lockdown amplified these challenges. 

“Our research shows a concerning game of tug-of-war is emerging between small businesses as they look to survive and plan for the future.” Buyers can’t pay their invoices because they don’t have the revenues and sellers are being asked to provide longer payment terms to ease the strain whilst already sitting on a growing backlog of unpaid invoices.

“Coronavirus can and should trigger a step-change for small businesses to become more efficient, productive and resilient,” added Gilman. The first and most obvious change is making payment terms fairer between suppliers and their customers – in other words, UK small businesses need a level ‘paying’ field.



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