The Broken System
The traditional business transaction is broken. It has been broken for centuries. The credit & debt system has proven to be a setup for eventual failure. More importantly, financial service providers know the system is broken but they also know they don’t gain in the event of a correction. In fact, the financial service partners stand to lose all the power they have gained over centuries as the power would shift to where it should have always been – the business owner, the true hero of all economies.
Patient Zero to The Global Business Transaction Disease
For most of human history, money was not something that was carried around by people to buy things. In fact, money started out as a way of calculating credits and debts. Expense accounts, bar tabs and even compound interest rates date back to at least 3500 BC.
Interest-bearing loans go all the way back to Mesopotamia, where they caused enormous problems. Poor farmers would often borrow money from officials and merchants. If they fell into arrears, their sheep or vines would be carried away. Eventually, even sons, daughters and wives would be taken as security for the loan. Faced with the breakdown of society, the kings of the time would periodically announce amnesties to return land to its original owners and individuals to their families.
In England in 1694, a consortium of London merchants lent money to King William II to pursue a war in France. In exchange, they were allowed to call themselves the ‘Bank of England’ and loan the money that were due to be repaid to the public in the form of banknotes. This loan has never been repaid, and if it were, the entire British currency system would cease to exist!
History Repeats Itself
Fast forward to 2020 and here we are faced with a global small business cash flow epidemic. Despite credit cards, lines of credit, overdraft protection, operating loans, purchase order financing, invoice financing and even home remortgage loans, business owners are still expected to extend payment terms for after delivery. Why? Why are small businesses extending non-interest bearing credit to their customers when credit is so clearly abundant today?
We may not have to “physically” offer our children & wives as security on the credit this time but we do sacrifice their futures with extreme debt and often bankruptcies. The breakdown of society is happening all over again and this time the Kings, our governments and banks, have no plans to announce amnesties and return order to the world. After all, it is working out just fine for them.
Opportunity for a Digital Revolution
The birth of a new digital payments economy presents a huge opportunity to correct centuries of getting it wrong. FinTech’s like Cashflow.io have an opportunity to protest the broken system and unite business owners to start a new way of doing business, a better way and possibly even the right way. We have a chance to correct the wrongs of the past and set it straight but it needs to start now.
The first question that should be asked, “Should invoices even exist?”. An invoice is a “record of delivery of goods & services and a request for payment”. In a digital payments economy there is no need to ask for payment. When was the last time you bought food at the grocery store and the store owner had to chase you down the next month to get paid? It just doesn’t happen anymore. We already have credit in our pockets and don’t need to ask the business owner for additional credit. It would be considered ridiculous. Yet, we still do it at the B2B level and it has become ridiculous.
Invoice financing is also flawed when you really think about it:
“with an invoice finance facility, it allows business owners to leverage the value of their sales ledger. When you send out an invoice to your customer, a proportion of the total amount becomes available from the lender, providing an invaluable source of working capital throughout the month.”
Let’s cut the crap! Invoice financing is not needed to cover the working capital for a “month”. It is needed because nobody pays on time and invoice financing is nothing more than an insurance policy to make sure that not one late payment can crush the future of a business. However, it has never been just one late payment. Stats show that 50% of all invoices are paid past their due date!
Cashflow.io has an idea and it’s quite simple too. Lets say, “Goodbye to invoices!” Stop chasing payments for delivered goods & services. Make payment part of your agreements by requesting their digital payment details for later billing. Your customers either have the money or the available credit. If not, why are you doing business with them? If you have delivered, get paid! It will be that simple.
Once we rally together and change this culture of accepting late payments, let’s take a look at the lenders. Any small business owner doing good business should have access to reasonable financing options. They should, but don’t. Large banks don’t like sub-$100K loans and invoice financing is easy money. Alternate lenders service the non-bank worthy small businesses with unreasonable predatory conditions. They take advantage of distressed business owners and their emotional desire to keep their business alive.
It is time to fix the wrongs and stand up for what is right. It is time for a revolution. The current balance of power, primarily tilted towards the hands of financial service providers, needs to shift towards the true heros of our nations – the small business owners. They are the source of cash flow for the modern day kings, but this will start to shift with fintech.
“To the predator payment & lending services hurting our economies, let it be known that you are on call. Your days of taking advantage and neglecting the needs of your customers are numbered. Change your ways and join our fintech revolution or get used to falling behind”