Personal Finance. Money. Investing.

Of greater concern is the impact of late payments on the long-term health of the UK economy, which is estimated to have cost UK SMEs at least £51.5 billion in the last 12 months, but the true figure is likely to be much higher.

The new research from Hitachi Capital UK has determined the financial burden on the UK’s 5.6 million SMEs as a result of late paying customers and uncovered the extent to which an epidemic of late and unfair payments is hampering productivity and growth.

Over a quarter of SMEs (27%) have experienced a profit squeeze because of late payments, and 12% have had to defer staff pay, equating to an estimated 1.95m UK employees that are left empty-handed on payday.

With many SMEs already struggling to maintain liquidity, the research highlights the extent to which late paying customers represent a drain on resources. Around 40% of respondents have been forced to use their own money to address cash flow gaps in their business. The vast majority of these respondents (80%) have invested personal savings to keep their business afloat or operational.

Critically, the research exposed a need for SMEs to take measures to maintain cash flow over the course of the year to mitigate damage caused by unreliable customers. Nearly three quarters of SMEs (74%) have had a customer fail to pay during their agreed terms at least once during the last 12 months, and 34% of SMEs report customers using their position to delay or reduce payment.


With 21% of SMEs also turning down a contract because a customer was known to be a bad payer or offering unfair payment terms, the use of external funding options is an increasing necessity to offer a safety net when business is stalling. Today’s research indicates that awareness of potential solutions such as invoice finance remain too low.

Robert Gordon, CEO of Hitachi Capital UK, said: “An imbalance of power between clients and suppliers, often driven by larger players abusing their position, has led to a widespread late payment culture that is damaging UK SMEs. As our research has shown, if we let this go unchecked, huge numbers of businesses will continue to experience cash flow pressures at a time of wider economic uncertainty.

“This has ramifications not only for SMEs, but for entire supply chains and a fair, competitive and supportive business environment is critical for the country’s wider economic success. It’s imperative that we not only acknowledge this issue and crack down on late payments, but also take practical steps to ensure businesses are given the required support and penalties are put in place for the worst offenders.”

The findings come amid a range of new Government measures – proposed by the previous Government but currently on hold – of tougher sanctions to address late payments, including greater powers for the Small Business Commissioner to enforce best practice and revisions to the Prompt Payment Code. Of those surveyed, over two-thirds of SMEs (68%) would support legislation making it illegal to miss a payment deadline, with over half of respondents (57%) spending nearly a day a week chasing outstanding invoices, suggesting that late payments are contributing to the productivity deficit within the UK economy.

In analysing the sector landscape, professional services was identified as one of the worst offenders, with 17% of SMEs identifying this grouping as a leading culprit for late payments.

The South East was the region with the highest proportion of SMEs reporting financial issues caused by late payments, representing 18% of the total number of responses, followed by Greater London at 16%.

Andy Dodd, Managing Director, Hitachi Capital Invoice Finance, added: “As one of the UK’s leading finance providers, we understand first-hand the impact that late payment can have. Many SMEs struggle to maintain liquidity and this remains an underlying threat to their personal finances and ultimately the survival of their businesses.

“Fortunately, there are a number of solutions available to small businesses. Firstly Invoice Finance which provides an immediate advance, normally of up to 85% of the invoice value, to provide instantaneous cashflow injection. Secondly, using a good credit control provider, perhaps aligned to Invoice Finance – it’s an area that frequently neglected, but should be front-of-mind amongst SMEs.”

It’s no secret that small and medium-sized enterprises (SMEs) are the lifeblood of the UK’s economy. Representing 99.9% of all businesses, they employ 16.3 million people and have a combined annual turnover of £2 trillion, which accounts for 52% of all private sector turnover. Whether driving growth, opening new markets or challenging the status quo through a new product or service, SMEs are essential to UK plc’s growth story.

Yet the future for some of the UK’s boldest entrepreneurs is not a rosy one. The Department for Business, Energy and Industrial Strategy (BEIS) estimates that the number of SMEs fell by 27,000 between 2017-18, and there is no evidence to suggest an upturn going forward. Growth forecasts are dismal, and sterling is in decline.  As with a lot of things, it is Brexit that is causing the most concern, with many businesses unprepared for the impact of a 'no-deal' on their balance sheets.

The Government is trying to mitigate the dangers. Sajid Javid,  who was recently appointed as the Chancellor of the Exchequer, has set aside £2.1 billion to prepare for a no-deal, of which £108 million will be made available to “promote and support businesses to ensure they are ready for Brexit”. Given the contribution UK SMEs make to the economy, this appears a paltry sum. We also have yet to understand how the money will be used, the means by which it will be distributed, or when it will be made accessible.

So if the Government’s efforts to empower our SMEs are lacking, who can they turn to?

Whether driving growth, opening new markets or challenging the status quo through a new product or service, SMEs are essential to UK plc’s growth story.

Banks aren’t playing ball

Traditionally the UK’s banks have been seen as the 'one-stop-shop' for SMEs looking to borrow money for investment. Yet they are not playing ball. The financial crisis of 2007–2008 revealed substantial weaknesses in the banking system, the effects of which continue to weigh heavily on the UK’s economic growth and financial stability. Consequently, SMEs are being starved of funding and forced to jump through hoops in order to access vital cash, because the big high street banks are wholly focussed on de-risking their balance sheets and shoring up capital.

The inescapable fact is that banks aren't lending to SMEs because it's not profitable for them to do so. Under Basel III, the global regime under which banks are regulated, banks are obliged to hold almost twice as much capital against an SME loan as they are for, say, a buy-to-let mortgage. Reserving more capital means making less profit – unsurprisingly therefore, banks naturally migrate towards activities that deliver more to the bottom line, to the detriment of SMEs desperately in need of business liquidity.

If SMEs can no one longer rely on traditional bank loans for finance, it begs the question as to who can support frustrated business owners in the tough times ahead.

Alternative finance providers pick up the slack 

Fortunately, alternative financial services providers are picking up the slack left by traditional financial institutions, by creating innovative ways for SMEs to access funding via a myriad of means such as peer-to-peer lending, crowdfunding and venture capital.

Changing the mindset of SMEs regarding the importance of borrowing to invest is also of vital importance.

For example, Hunter Jones has been successfully raising development finance for SME property developers via ‘Property Bonds’. Investors’ capital is offered as a loan to a development company and their contract clearly explains how the investment will be used, how the capital will be secured, and when the investment will be repaid. Our work means that many construction projects in the early stages of development are being 'green-lit' and prospering. In return, investors are receiving a highly competitive fixed return on their investment with the benefit of 'bricks and mortar' security. The uptake has been extraordinary and we have seen £50 million raised for UK developers in a five-year period, with expectations to raise a further £25 million in 2019 alone.

The future of SME finance

If SMEs are to improve their outcomes and thrive, more will need to be done by the Government and the financial services industry to tackle the lack of innovation in SME lending and the grip of the banking oligopoly that dominates it. But changing the mindset of SMEs regarding the importance of borrowing to invest is also of vital importance – particularly in ensuring there is accurate understanding as to the meaning and benefit of ‘alternative finance’.

It has recently been announced that the Chancellor has set aside £138 million to boost public communications and help people and businesses get ready to leave the European Union on 31st October.

My fingers are firmly crossed that part of that money has been allocated to educate SMEs as to the importance of alternative lenders as a source of finance, and a viable means to empower UK plc in the tough times ahead. If not, ‘investment’ will become a dirty word and the financial services status quo, and its associated problems, will continue unabated – a situation that none of us, least of all our SMEs, can afford.

But according to James Butland, VP European Banking at international payments platform Airwallex, this is changing.

Innovative solutions and more customer centric business banking platforms are on the rise, and, as a result, SMEs are moving away from their current banks in their droves. This is highlighted by the UK’s Current Account Switch Service reporting that there were 17,687 business account switches using the service during Q2 of this year, compared to just 8,000 switches during the same period last year.

Clearly, SMEs are hungry for new services that help them to manage their money more effectively, and with Brexit and a fluctuating currency potentially causing issues, it couldn’t come sooner.

World changing SME banking 

The need for services that better meet the demands of businesses has seen payment fintechs such as Accelerate, Square and Monzo partner with the likes of Mastercard, eBay and Visa to provide more up to date technology in the B2B banking world. These innovations are aimed at speeding up payments and helping SMEs to compete in an increasingly globalised and competitive economy.

Innovation within international payments has also seen similar developments. This is largely due to the opaque nature of current FX practices. A new paper from the European Central Bank recently revealed that banks across Europe have overcharged SMEs for foreign exchange services, and have earned hundreds of millions of euros each year, at the expense of their small corporate customers. These SMEs have often been presented with misleading exchange rates and secret charges by banks, while unfairly being offered lower exchange rates compared to larger businesses at the same time.

This is a big issue. Particularly as 232,000 of UK SMEs exported to overseas markets last year, representing 10% of the country's small and medium-sized businesses. It’s why companies such as Airwallex, through our Global Accounts and FX capability, is helping SMEs to break through murky FX practices, and access exchange rates that have been typically only available to large corporates. Customers can be shown correct and clear rates and can act as a local in new markets. These new platforms, services, and in some cases new banking entities, are removing the complexities of exporting overseas and therefore allowing SMEs to focus more on growing their business.

Partnership benefits for SMEs

SMEs desperately need these developments because previous legacy payments and slow banking processes are not only significantly slowing down the speed at which they can operate at but are also ultimately limiting their growth. The transparency available now to help SMEs understand FX rates and expenses alongside more innovation within payments and banking solutions will prove vital for smaller businesses going forward. This will provide them with confidence over their margins and allow them to grow through enabling them to provide far swifter payments, both nationally and internationally.

Philip Hammond says that the UK fintech industry is currently worth £7 billion, employing more than 60,000 people. These massive, tech-driven disruptions are proof that fintech has finally emerged as a mainstream industry. Not only that, but these changes have also created numerous new trends that will benefit both businesses and consumers. Here are some to watch out for this year that will affect the financial industry:

Voice technology will grow in banking

Consumers can already operate a handful of things by voice, including music, TV, GPS, and even home security. Currently, banking is slowly catching up in order to improve customer service and prevent fraud. HSBC have reportedly saved £300 million in fraud through voice biometrics. Customers repeat a phrase after giving the bank their details over the phone in order to provide an extra level of security. Expect more banks to follow suit this year and for voice biometrics to become even more widely used.

Faster payment processing

Bloomberg reports that customers can expect banks to speed up checkout lines through a wider adoption of contactless cards. Payment Relationship Management CEO Peter Gordon said large banks do not want to be displaced so they’ll do what they can to be more efficient. In Singapore, they opened their first real-time and round-the-clock payment system called FAST. Singapore Minister for Education Ong Ye Kung talked about it at the launch of SGQR, Singapore’s single and standardised QR code for e-payment. "We will allow non-bank players to have direct access to FAST. This is to enable their e-wallets to bring greater convenience to consumers," he said. Expect e-wallets to become more widely used this year.

Blockchain-powered freelance market

The global recession along with the advancements in technology has led businesses to embrace alternative work arrangements particularly for freelancing, which is becoming increasing popular in the finance industry. In fact, the world’s first blockchain-powered freelance market has already been launched in the UK. The Fintech Times highlights how the marketplace gives employers instant access to a talent pool of freelancers. Work and skills are continuously validated and recorded, and the platform allows freelancers to create smart contracts, which ensures they get paid on time. This brings transparency and fairness to the gig economy. And Yoss explains how the current state of freelance recruitment now includes “highly rigorous skills validation and qualification tests,” as the demand for specialists in areas such as AI increases. The blockchain platform will allow companies to find freelancers based on the quality of their work rather than the quantity, which will benefit both businesses and those looking for jobs.

Alternative Finance for SMEs

Resesarch by American Express found that 30% of SMEs find it difficult to access the finance they need, despite the fact that 68% think cash flow is important to their business. In the UK an increasing number of SMEs are moving away from traditional financial avenues like bank loans. This has led to a 13% increase in the use of peer-to-peer lending in the past 12-months. Peer-to-peer collaboration is a much more streamlined way for SMEs to access financial support. For instance, micro-lenders mainly operate online, which helps reduce overhead costs and takes out the middleman.

Chatbots and robots

Apart from speeding up transaction times, fintech is also revolutionising customer service through chatbots and AI. Today’s chatbots are already able to not only understand what the customer needs but also the entire context of the conversation. This will help reduce the amount of time customers spend waiting for answers or on being hold. The technology will also mean that banking apps will become the primary form of communication between customers and their banks in the future. This will reduce costs and allow for a more streamlined service.

The finance industry is not only opening doors to faster transactions and better customer service, but it’s also creating more opportunities to work in a fast-evolving and lucrative industry. Chris Renardson points out that if anyone wants to make it in the industry, it takes more than technical and numerical know-how. So follow the above trends to stay ahead of the competition.

The SME market is becoming a key target sector for most banks, but these often more agile organisations demand a better digital approach, and according to Kyle Ferguson, CEO of Fraedom, a personal touch is what’s needed.

Thanks to technological advances within retail banking, the way we bank in our personal lives has changed dramatically. No longer do we wait for bank statements to arrive at the end of each month to get an idea of our spending; instead, we are able to do this whenever we want, and often in real-time, via an app on our phone. This evolution of banking in our personal lives has fuelled a change in expectation among SMEs who are demanding the same experiences and offerings within the world of business banking. As a result of this change in expectations, SMEs are demanding a better digital approach as reflected by 57% of SMEs that now want to move to an online/mobile banking business environment.

However, banks are currently struggling to meet the demands of SMEs and deliver the more personalised service and consumer-focused offering the majority desire. Yet, with a combined annual turnover of £2.0 trillion and accounting for 52% of all private sector turnover in the UK in 2018, SMEs are a highly lucrative market that banks can’t afford to ignore. So, where should banks start and how can they begin to attract SMEs?

Developing a digital offering

According to a survey conducted by Fraedom, 95% of commercial clients who bank digitally in their personal lives, expect to do so at work as well. Ultimately, SMEs want the same digital capabilities, such as apps and online platforms, they get as personal customers. Yet, just 43% of SMEs claim to have near real-time control over business spend. Similarly, almost a third of respondents feel they have very little visibility on a day-to-day basis and nearly a quarter confessing to having to regularly spend significant time and money investigating who spent what. Furthermore, over half of UK respondents said that on average they were personally spending more than two hours a week on expense or financial management tasks. The need to regularly go back and interrogate audit trails can be a further drag on a business’ efficiency and productivity.

Just 43% of SMEs claim to have near real-time control over business spend.

In our personal lives, we now have seamless mobile transactions, highly responsive customer service and fast transaction times. Yet, although personal bank statements typically update in real time and can be viewed on a mobile device, reconciliation of work-based expenditures can take days, if not weeks to process. It is therefore unsurprising that SMEs are left frustrated by the lack of innovation offered by banks and are demanding banks provide the same tools, level of service and personalised experience we have become so used to in our personal lives.

Gaining an understanding of SMEs

Banks’ engagement levels with SME customers have also been revealed by Fraedom to leave a lot to be desired with just 12% of UK SMEs saying they thought that banks their organisation had dealt with over the past year fully understood their needs as a business. It is therefore vital that banks work to understand the needs of SMEs and also learn to speak the same language.

This understanding of SMEs also extends to ways in which they want to interact with banks. For instance, the 2018 FIS Performance Against Customer Expectations (PACE) found that almost half of UK SMEs prefer to contact their bank through digital methods via a tablet or mobile, for example. Banks need to keep this in mind and offer preferred methods of communication if they are to really tap into this lucrative market.

The SME sector is a truly lucrative market for banks, and ignoring their pleas for a more digital, personalised approach would be a mistake.

Moving forward together

The SME sector is a truly lucrative market for banks, and ignoring their pleas for a more digital, personalised approach would be a mistake. It is vital that banks begin to innovate to answer this demand with partnering with fintechs often being the most effective way of doing this. Through fintech partnerships, banks will be able to not only implement the right technology but also to get a better understanding of their SME client-base. As a result, banks will be better able to understand the consumerisation of business processes and technologies; the eagerness of SMEs to adopt these to achieve enhanced agility; and the frustration they feel if they sense that banks are effectively not speaking their language.

This tailored service will allow banks to build lasting, more trust-based relationships with SME customers, while SMEs will gain greater business agility, streamlined efficiencies and increased visibility of expenditure.

With a background in finance and economics, Abdullah has spent the last 18 years of his professional career working in various sectors in Kuwait. He has previously held senior positions at Sarh Real Estate Company, The Roots for Brokerage (Egypt), Danah Al Safat Foodstuff Company and at Al-Ezdehar Real Estate in Lebanon. His extensive experience has given him plenty of insights into different sectors and regions out of Kuwait. Today, in addition to his position as Al Safat Investment's Chairman, he is also the Head of Committee of the Politics and Economics Committee at the Union of Investments Company (UIC) and is a board member of local establishments like UIC and Shuhaiba Industrial Company, as well as the Executive Manager of Gulf Cable and Electrical Industries Co for the investment sector. It is indeed inspiring to see someone of his calibre and young age achieve so much in the past few years. His professional achievements are not only limited to the ones on his resume - the 35-year-old award winner also has a long list of certifications in Marketing, Finance, Investment Management and has completed a Financial Services Program from Harvard Business School. He is currently pursuing an EMBA from the London School of Economics. AlTerkait lives by the words of Benjamin Franklin: “An Investment in knowledge pays the best interest”. Education has always been at the forefront of his priorities and his hunger for learning never ceases.

There are not many leaders who, at the very young age of 29, are able to take charge and turn a company around in the middle of a financial crisis. Al Safat Investment was going through a rough couple of years prior to 2013 when AlTerkait was appointed Chairman of the company. Debts were high, employees were in a stressful situation, shareholders and clients were extremely unhappy and there was immense pressure from the banks. At the time, it seemed like salvaging the company and bringing order out of this chaos would be a tedious challenge. Al-Safat Investment Company underwent comprehensive restructuring and embedded the institutional aspect in all of its businesses while setting clear goals with the efforts of the company’s board of directors and the executives. The company’s direction and performance improved as a result. Thereafter, Al Safat saw three consecutive years of profits due to the restructuring initiatives of Abdullah, the senior management and other departments.

Al Safat Investment is an ideal example of how teamwork could yield impressive results. The Chairman strongly believes in teamwork and encourages all departments to work together. Battling all fronts, he has put in efforts to establish a gender-equal atmosphere in the company by hiring qualified women to fill roles in the human resources and other departments of investments. His initiatives are not only beneficial for the bottom line, but they are also in tandem with his ethics and strong beliefs in Corporate Social Responsibility. Last year, for example, the company carried out a very successful Ramadan event with all employees and management personally visiting the group’s subsidiaries and distributing food packages to the labourers who work for the companies.

Al Safat Investment Company was founded in 1983 and has grown rapidly since then. All investments and financial services held or offered by Al Safat are in accordance with the highest standards of Islamic Shariah compliance, which is supervised by a CMA-Certified Islamic finance consultancy company. The company invests in real estate, financial, healthcare, industrial, energy and other economic sectors through participation in the establishment of specialised companies or purchase of stocks and bonds in these companies, or by the management of projects in various sectors.

The company is about to establish a mass investment system capable of generating substantial revenues, to be allocated for venture capital. In addition, the latter will target the investment with some strategic shares in many Kuwaiti startup companies. Part of AlTerkait’s vision for Al Safat’s future is to be involved in SMEs and to support young entrepreneurs. The Chairman strongly believes that leaders should support the next generation of leaders in the business world and promote a good relationship between corporate and small businesses. Kuwait’s 2035 vision plans to attract KD 400million to various sectors including petrochemicals, information technology, services, and renewable energy. The country plans to promote an atmosphere that enables SMEs to participate in the nation’s economic development. The National Fund for Small and Medium Enterprise Development is one of the country's key initiatives tasked with enabling the private sector to drive growth. With nearly 80% of the population still employed in the government sector, there has been a rise in young entrepreneurs and startups. Through Al Safat, AlTerkait would like to support these small businesses by offering financial advice and services and possibly a co-working space for those who work from home or coffee shops. He hopes his initiatives will help pave the way for a better future for the economy of Kuwait, while being in line with the vision of His Highness, Emir of Kuwait, to transform Kuwait into a financial hub. While supporting startups, the Chairman will also be personally looking into investment opportunities for the company, in SMEs that stand out, particularly in the innovation and tech space. 2018 had some noticeable developments in the investment activities area at both local and regional levels. This targeted the startups, tech companies and VC funds resulting in a significant rise in investment deals. The Middle East and North Africa region managed to conclude 366 deals with a total investment of USD893 million, subject to the indication of some independent statistics concerned with following up the activities of venture capital. Subsequently, there was also a notable rise in Mergers and Acquisitions declared by the commercial entities and multiple sectors. AlTerkait predicts that 2019 will witness the same trending rise of such deals, in addition to the notable growth of the investment funds and the finance sector targeting startups and SMEs. These trends will continue to attract the interest of investment and financial companies who would be keen to capitalise on this vital and promising sector.

The company is in the process of rebranding with the view of transitioning from traditional to modern while offering multiple new investment products and services to its clients. When it comes to the securities market, Al Safat Investment Co. holds a license issued from Capital Markets Authority to practice managing the investment portfolios business in its various kinds for the benefit of the company’s clients, in Kuwait and globally. The company has a team that specialises in working to achieve profitable returns on the managed portfolios of the company. The total managed funds account for over USD 120 Million as of January 2019. It manages local and regional investments of USD 300 Million. The company is also working on creative strategies and solutions in partnership with international consultants in order to provide the best opportunities for the benefits of its corporate and private individual clients.

The administration of Al Safat Investment Co. is applying a secure and comprehensive strategy while managing the direct investments and the managed financial portfolios for the clients. Such portfolios target the operational companies, the leading stocks, fast-growing stocks and constant revenue stocks together with keeping up the ultimate geographical and sectoral distribution. With the company’s direct portfolio being distributed over seven sectors within five countries, the intent is to reduce the accompanying risks for these investments in addition to protecting the direct and client portfolios from the severe fluctuations of the market and the vulnerability the local and regional securities markets may be exposed to. Al Safat applies a conservative and safe strategy in the management of direct investments; managed portfolios of customer accounts are looking to further privatise government entities after the privatisation of the stock exchange and is also looking forward to being a listed company again.

Some highlights of Abdullah’s strategy for the company are:

- Set minimum investment returns that meet the company’s cost of capital.

- Grow the equity base through solid constant profits and cash dividend distributions   to shareholders.

- Divest any non-performing assets.

- Ensure that the investments are aligned and maintain synergies.

- Improve management control which is a key factor.

- Set adequate policies and procedures within the group.

- Apply proper corporate governance for the best interest of the shareholders.

Under the guidance of Abdullah AlTerkait, represented by the board of directors and the executive management, the company is seeking to restructure the financial position, address the recent financial issues, leave the unprofitable and non-strategic investments, re-employ the investments in some strategic sectors and instruments, while also promoting the expansion activities of associated companies. The Chairman hopes this plan would benefit the years to come so that a concrete plan will be established for 2023. In fact, through its subsidiaries, the company is currently focusing on the various operational and industrial activities and is seeking to establish a new chemicals factory in Kuwait. Similarly, they have also developed an interest in the Oil and Gas sector and are looking for opportunities to invest. The company has a subsidiary called ‘The Carpet Factory’ which is looking to expand and invest in state-of-the-art technology to improve business and its products. Real estate is another sector AlTerkait is keen on embarking on and is in the process of developing a commercial and industrial complex in the Al-Ahmadi Industrial area of Kuwait. The group is also participating in the health sector through Kuwait Hospital, which will start operating this year and is also looking for acquisitions in various sectors, especially since there are attractive investment opportunities with outstanding profits in the local market. Abdullah AlTerkait and the management of Al Safat hope to reach their ultimate goal of being amongst the best investment companies in Kuwait in the next five years.


Since the beginning of the financial crash, business lending has been a challenge. Banks have struggled to lend to any business, let alone what is often perceived as riskier start-ups and SMEs. Yet, with SMEs making up 99.9% of private businesses and employing 60% of the UK workforce[1] – 16.1 million people – this is a dangerous situation. If these businesses cannot access necessary finance, this could have a detrimental impact on their business; they may have to let employees go, they could find themselves unable to pay suppliers or worse, this could cause their business to fold. In turn, that impacts the economy, which reduces lending, which then puts even more companies out of business and people out of jobs.

The economy needs SMEs. Consumers need SMEs.

One of the challenges is that, as Louise Brett, Head of FinTech for Deloitte put it in 2017[2], “…for almost a decade, banks have been given the ultimate mixed-message: ‘lend’ and ‘don’t lend’. Regulators want them to be less risky, but politicians don’t want to see small businesses starved of funding.”

With the increasing use of the latest risk assessment technology and automated lending decisions, SMEs have suffered. Banks are closing branches, and as a result, many companies have lost access to the experts who understand their business and can fairly assess their risk to make an informed lending decision. Traditional banks no longer have the resources to scrutinise every application in this way.

The economy needs SMEs. Consumers need SMEs.

Of course, such a labour-intensive assessment process came at a cost, excluding many businesses even when lending was more readily available. A new solution is urgently required. But it cannot be the same offering, delivered in the same way it has been for generations, through the traditional legacy systems which add time and cost.

Businesses today move quicker than ever before, and their finance options need to keep up. For a business lending solution to be cost-effective and meet the needs of even the smallest microbusiness, it needs to be built with those companies and their specific requirements at their heart.

Identifying the challenges

Last year we carried out a survey amongst those responsible for financial decisions in over 500 SMEs of all sizes. We wanted to find out about the pain points in today’s business borrowing journey.

Of our respondents, 92.5% had cause to seek finance within the past five years, and just 13.5% experienced no problems with the process. More than half (52%) of the SMEs needed finance to purchase essential equipment for the business. 35% hoped to borrow so they could buy stock and 28% needed help to expand into new markets.

The challenges these SMEs faced focused primarily around rates, fees and speed. 35% said their bank didn’t offer the best rate; 28% found the fees too high; and for 23.4% and 21.4%, respectively, the speed of facilitation of the finance and even speed of response from the bank were a problem. 18.8% found that their bank didn’t offer the length of loan they wanted, demonstrating the inflexibility of traditional banking systems.

A new generation of innovative, affordable, forward-thinking lenders, able to move quickly without legacy systems holding them back, is entering the market to meet this need, breaking down financial exclusion.

Any of these issues has the potential to exclude a company from fair and affordable access to the finance required for business prosperity or expansion. A quarter (24.6%) of the SMEs said that without additional funding they would have to let employees go. 13.3% expected that the business would not survive without access to extra finance.

Tackling the payment gap

Of course, many firms would not need a business loan if they received faster payment for goods and serviced delivered. Payment terms allow as much as three months to pass before payment is received – and the ever-present spectre of late payment can stretch that gap out even further. The seller has incurred the costs of the order – production, shipping and essential business costs such as rent and salaries – but the wait for incoming payment can be almost interminable. For small businesses, with less flexible cash flow, this could be the difference between success and failure.

But what’s the answer?

Banks have traditionally been the only viable solution for a business loan, so they are often still the SME’s go-to provider for even short-term financial help. However, slow set-up, relatively high-interest rates and expensive arrangement fees can add to the cost of borrowing and put-off many would-be borrowers. Specialist lenders can often provide a more cost-effective, and faster business loan solution. However, many apply very high-interest rates which can make repayments a significant burden for a smaller business.

Existing solutions, even those which are newer to the market, cannot provide the scale the global digital business landscape requires, at least not in an affordable or flexible form which will allow businesses of all sizes to grow, succeed and compete effectively. A new generation of innovative, affordable, forward-thinking lenders, able to move quickly without legacy systems holding them back, is entering the market to meet this need, breaking down financial exclusion. And it seems the marketplace is open to these new offerings, whether cash advances on receivables due, or longer-term business loans.

58% of respondents to our research said they would approach a non-bank for a loan, if it offered low-interest rates, and 44% would do so to achieve lower arrangement fees.

Changing the business lending landscape

58% of respondents to our research said they would approach a non-bank for a loan, if it offered low-interest rates, and 44% would do so to achieve lower arrangement fees. New solutions are designed with the customers’ needs at the centre, rather than the incumbent’s abilities and what fits within their traditional infrastructure.

A stitch in time

Financial utilities are able to support Financial Tech businesses and banks in providing their customers with the convenient, flexible and lower cost solutions businesses need in today’s market. The systems and infrastructure have opened allowing non-banks to provide innovative solutions to better serve end users. And financial utilities like Banking Circle can offer business loan solutions that help rather than hinder business success.

As a next-generation provider of mission-critical banking infrastructure – from payments to lending – Banking Circle is providing PSPs with the tools to offer their customers a unique solution to the age-old business problem, that of managing cash flow. With Banking Circle Instant Settlement, a lending decision is made instantly, online, enabling the merchant to receive payment immediately. With cash kept flowing, the business can pay its costs, reinvest, expand to new markets and geographies, and compete effectively, ensuring they can reach their global potential without being held back by slow cash flow.

Whether a company needs to pay suppliers, refurbish premises, invest in marketing or increase headcount, a quick and simple advance on payments due could make the difference. And Banking Circle Instant Settlement can provide the essential stepping stone to get the business through without the long-term repayment commitment of a business loan.

Banking Circle Instant Settlement, which can be accessed via a PSP or other FinTech gives merchants the facility of instant settlement of receivables due, without waiting for settlement cycles or invoice due dates. The advance is paid back in full once the invoice is settled or the payment processed. The seller receives their funds instantly and payment is settled by the customer or marketplace at a later date.

The full results of the Banking Circle SME study are included in the white paper, ‘The epic business loan battle: SMEs fighting for finance’, which can be downloaded at 



Below, Finance Monthly hears from Kim Hau, Senior Proposition Manager for ONESOURCE Indirect Tax, Thomson Reuters, on preparing your business for MTD.

HMRC’s move is in-line with the global trend towards a more digital relationship between tax authorities and businesses, as well as increased regulatory guidance from the Organisation for Economic Co-operation and Development (OECD) for greater transparency in tax data.

Digital Records and Submission

The first stage of MTD for VAT mandates digital record keeping and filing for all VAT registered businesses with a turnover of £85,000 or more, providing a “soft landing” period for businesses before mandating the requirement to have digital links between their data. The ultimate aim is to improve the quality of record keeping, while reducing the mistakes often caused by manual processes and reducing the perceived tax gap – of which £12.6 billion relates to VAT.

A recent Thomson Reuters survey on MTD found that 79% of respondents keyed in submissions directly into the government gateway, something that will not be acceptable come April 2019, or, October 2019 for more complex businesses.

Instead, businesses will have to store and maintain all Accounts Payable and Accounts Receivable data in electronic form using functional compatible software. In other words, using technology that can store and maintain records, perform the required calculations, and submit the information to HMRC directly via their Application Program Interface (API). Those wedded to the use of spreadsheets will find that whilst they can continue to be used, they will require additional software to handle the digital submission piece and certain conditions must be met to ensure a digital trail.

Digital Links

The second stage mandates digital links, the requirement that any transfer or exchange of information in the VAT return process is made electronically between software programs, products or applications. This is a move to limit mistakes from manually inputting figures and comes into effect for all VAT registered businesses in April 2020.

The second stage mandates digital links, the requirement that any transfer or exchange of information in the VAT return process is made electronically between software programs, products or applications.

By far, this is anticipated to be the most complex and difficult requirement of MTD for VAT, forcing businesses to assess every single step of the UK VAT return process for each of their entities.

While there will be some flexibility in the first year of MTD going live there will be no bending of the rules. Connecting all digital records will not only help to ensure the business is compliant but will also future proof organisational systems and processes before penalties are enforced.

The Road to Digital Transformation

An obvious first step is for businesses to understand to what extent they are already compliant, focusing on where relevant data is collated, what kind of data is available via digital means and understanding the processes used for producing VAT returns.

At this stage, companies will be able to decide on what level of change is required. However, with further reforms expected after 2020 it is highly recommended that companies do not settle for a “sticking plaster” solution.

With further reforms expected after 2020 it is highly recommended that companies do not settle for a “sticking plaster” solution.

There are many solutions available to meet each gap of MTD for VAT compliance, however piecemeal solutions should be put in context of the general trend towards a digital tax agenda, and their long-term suitability.

Reviewing the options with internal and external stakeholders such as IT, software providers and external consultants will ensure that the most appropriate solution to meet operational needs is selected. This could include considering data security policies, compatibility with existing systems (e.g. ERP) and developing a tax technology strategy. After all, while MTD for VAT is a UK initiative, it is also worth considering the growing impact on tax teams of similar reporting requirements in other jurisdictions.

Three quarters (75%) of UK small businesses have been rejected by banks when trying to access funding, according to independent research commissioned by Capital on Tap.

The research discovered that access to funding was especially difficult among smaller and micro businesses. Over two fifths (43%) of sole traders have had funding requests rejected while 44% of organisations with 10-49 staff experienced the same fate.

The study also revealed that almost half (48%) of UK small businesses have been left waiting for more than two weeks to receive a funding decision from banks, while more than a quarter of firms (27%) have had funding requests rejected outright.

David Luck, CEO and founder at FinTech Capital on Tap, said: “It’s clear that banks are denying small businesses the chance to fulfil their growth opportunities. Typically, smaller businesses have limited access to credit so the importance of having a facility that can provide a quick cash injection to invest in equipment or make the most of a busy trading period is essential to stability and future growth.”

The research also revealed that there is a strong diversity in the types of credit that businesses are looking to secure. The most popular funding application was for term loans (51%) with overdrafts (28%) and business credit cards (19%) also being very popular options. Out of those companies that had sought funding in the past five years, the majority (35%) had been looking to secure relatively modest amounts of funding, generally under £5,000.

“What we see from the study is that businesses are generally looking for small, flexible credit facilities, whether at times of need or opportunity. This is exactly where banks struggle to service the millions of SMEs in the UK as they are geared for consumers or large corporate clients. The next generation of entrepreneurs expect the flexibility and quick service from banks that they can attain in their personal lives, which includes easy access to funding. We are seeing the success of alternative lenders in the UK because there is a clear demand for this type of fast, transparent service.”

(Source: Capital on Tap)

Company voluntary arrangements (CVAs) have been a mainstay in the financial news over the last six months due to their status as the restructuring tool of choice for many of the UK’s high street stores. House of Fraser, Mothercare, New Look and plenty more retailers besides have all used CVAs to try to renegotiate their existing debts with unsecured creditors. But with this increasing use has come more scrutiny, with a number of parties unhappy with the way the current system works.

Are CVAs fit for purpose?

There is growing concern among a number of parties that CVAs, as they stand, are being abused. Company voluntary arrangements are an insolvency tool that’s designed to give struggling businesses more time to repay their debts and an opportunity to restructure away from the constant threat of legal action from creditors. However, they are increasingly being seen by creditors as an easy way for businesses to avoid administration and downsize their operations to the detriment of their creditors.

Landlords, in particular, feel like they’re getting the raw end of the deal. That’s because many struggling retailers, with House of Fraser being a recent example, are using CVAs to force reductions in the rent they pay and even break leases to close stores. It’s not only landlords who are feeling aggrieved. Other retailers that are battling to stay afloat are having to watch their rivals secure lower rents through CVAs while they are left to pay the going rate.

Landlords feel they’re not having their say

For a CVA to be put in place, it must receive the approval of 75% of the company’s creditors by the value of debt. However, while it is only unsecured creditors that will be affected by the terms of the CVA, secured creditors like banks and other financial institutions are still allowed to vote on the proposals. That means many CVAs are being approved without being accepted by landlords and other unsecured creditors who will take the financial hit.

Landlords are also concerned that CVAs are not always being used by retailers as an absolute last resort. Some landlords claim that retailers are not ‘on the cliff edge’ and are simply seeking a way to reduce their debts. This is often to the detriment of landlords and the benefit of the retailers’ shareholders. As an example, House of Fraser asked its UK landlords to accept a 30% rent cut, yet in the same month it opened a new 400,000sq. ft. store in China.

What reforms, if any, are needed?

The insolvency trade body R3 recently published a report that evaluated the success and failure of CVAs and recommended some changes that could be made to make the process more attractive. The report made a number of recommendations:

This will provide some relief to landlords who will be pleased to see the recommendation relating to director’s duties and the requirement to address financial distress earlier. They will also be reassured by R3’s agreement that CVAs in their current form are too long.

As yet, there’s no indication as to whether the recommendations are likely to be implemented. However, the report does make a strong case for the government to look again at the CVA process and implement at least some of the reforms.


Mike Smith is the Senior Director of Company Debt and a turnaround practitioner who specialises in giving small and medium-sized businesses debt advice and guidance on CVAs.


Research from Dun & Bradstreet reveals that UK businesses prompt payments deteriorated in in the three months to June (Q2). On average, less than a third (31.5%) of payments were made on time compared to 31.3% in the previous quarter. The average payment delay in the UK is around 15 days, two days higher than the European average.

Dun & Bradstreet’s UK Quarterly Industry Report shows a clear split by sector, with ‘Health/Education/Social’ and ‘Finance/Industry/Property’ recording the sharpest deterioration in payment performance (down by 1.7% and by 1.4% respectively quarter-to-quarter). However, more positive results were recorded for the Consumer Manufacturing sector which demonstrated the largest improvement, followed by the ‘Eating and Drinking’ (0.8%) and ‘Materials Processing/Mining’ (0.6%) sectors.

Late payments remain a significant problem for UK-based small- and medium-sized enterprises (SMEs). On average, larger companies of 251 employees or more only paid 8.1% of their payments promptly, compared with smaller companies of 250 employees or less, which averaged at 25.7% for paying their suppliers on time.

Commenting on the results, Markus Kuger, Senior Economist at Dun and Bradstreet said: “What is perhaps most worrying from the data is the sheer volume of late payments UK-based companies are having to contend with, not least as a result of weaker retail sales and the uncertainty of the impact of Brexit on businesses. Although there is legislation in place to assist small businesses with their struggle against late payments, the majority of the time they take no action for fear of alienating their larger customers. Late payments affect businesses across the sectors and of all sizes and give rise to tighter financial conditions and higher administrative, transaction and financial. With continued uncertainty for the foreseeable future, it is likely that we will see further deterioration in prompt payments due to rising headwinds triggered by the Brexit vote.”

(Source: Dun & Bradstreet)

In light of the recent cyberattacks that TSB and British Airways were faced with, Andy Barratt, UK Managing Director at cybersecurity consultancy Coalfire, delves into the trend for large corporates to be hit harder by IT glitches than their SME peers.

It seems barely a week goes by without the world’s news channels breaking the story of a major cybersecurity incident affecting yet another household-name business. In the last month alone, we’ve seen CEOs fall on their swords, the value of shares plummet and hundreds of thousands of people urged to re-secure their online accounts after IT failures and malicious attacks caused widescale disruption.

In the modern age, no business is safe – either from external threat or from itself. The IT saga that engulfed TSB this summer, and ultimately cost the bank’s CEO Paul Pester his job, is an example of a big business causing itself a monumental headache through poor risk management.

Bank customers were left without access to their digital accounts for weeks as TSB tried to migrate its clients’ account details across from its existing IT platform to that of its new Spanish owner, Sabadell. When IBM was called in to consult on the issue, it quickly became apparent that insufficient testing had been carried out in advance to ensure the transfer process would run smoothly.

Customers, MPs and journalists alike have since accused TSB of having its head in the sand over the incident, failing to get to the root of the issue quickly enough and keeping customers in the dark. The question on the public’s lips was ‘how could this happen to a business with presumably vast security resources?’.

Corporates miss security sweet spot

The answer is that behind the curtain – and contrary to accepted wisdom on cybersecurity – large enterprises are often not the best prepared to protect themselves against cyber risk, despite having bigger budgets and more resources. Coalfire recently conducted its inaugural Penetration Risk Report, which tested the cyber defences of enterprises of various sizes across sectors including financial services, retail, healthcare, and tech and cloud services. The research involved simulating planned cyber-attacks against the businesses – a practice known as penetration testing - to identify weak spots in their security armour.

A financial services organisation fared better that most. But even in this comparatively well-performing sector we found that large enterprises were not the most secure, despite having the most substantial cybersecurity budgets. Instead, it was mid-sized firms that found the sweet spot in terms of protecting their assets and mitigating their security risks.

So why doesn’t bigger spend correlate to improved security?

It’s worth noting at this point that TSB’s issue was not caused by malicious intent or outside interference. However, the incident highlighted a disturbing lack of understanding running throughout the business that is indicative of how large corporations expose themselves to risk.

Culture shocks

Business leaders must become comfortable hearing about problems and technical risk when it comes to IT. Often in large organisations, there is a mindset that the board doesn’t want to know about a problem, so risks are constantly re-framed and cracks painted over.

Consequently, senior executives often don’t have visibility of deeply-rooted issues and, ultimately, make decisions that don’t factor those risks in. This can be particularly unhelpful when businesses are looking to innovate as investment in new technology (mobile banking, rapid deposit taking, etc.) is hamstrung by existing technical challenges.

This mindset where boards are in the dark often occurs in organisations where a culture of blame is prevalent. We must move to a corporate environment where staff feel comfortable elevating issues to management rather than patching them up.

In the worst-case scenario, this disconnection between boardroom and shop floor can leave senior spokespeople fronting up to the media with little understanding of the issues that have embroiled their business in controversy. Highlighting how it should be done was British Airways’ Chief Executive Alex Cruz, who was quick out of the blocks to publicly communicate a detailed understanding of the specifics after the flight operator discovered a malicious breach in September.

Heads will roll

In the immediate aftermath of TSB’s IT failure, the Financial Conduct Authority accused the bank’s leadership of ‘portraying an optimistic view’ and failing to adequately communicate the extent of the issue to the public. The bank apologised unreservedly but the real question remained about its competence and whether TSB’s leadership understood, or was on top of, the job at hand.

While it would be unreasonable to expect the CEO of every UK bank or FTSE 100 business to be an expert on IT and cybersecurity, ultimately the buck stops with them. Given the monumental disruption to reputation and performance, there are a lot of lessons senior leaders can learn from the case of TSB.

Partner networks

Large businesses can also be put at risk due to the security shortcomings of the many partners they work with. This issue was evident when Ticketmaster was subject to a supply chain attack earlier this year. In this case, hackers used code supplied by Ticketmaster’s chatbot operator to extract payment details from its website after the code in question was incorrectly repurposed by Ticketmaster’s in-house team.

Similar activity was likely at play for the British Airways data breach, where data was lifted live from its website most likely via third-party code. BA is a regular participant in industry forums and best practice initiatives, and yet has still been affected, highlighting the risk big businesses face through their extended network of partners. Airlines in particular are at risk of attack because they frequently rely on complex infrastructure and shared services provided by airports, booking agents, aggregators and global distribution systems. Many don’t meet the security compliance rules we set here in the UK.

The same can be said for the financial services industry where there is constant interaction between myriad third parties and their affiliated platforms. For businesses of this size, resilience in the face of an attack is the modern approach. Always assume that someone will find a way in. Responding to that quickly will enable you to minimise loss.

To err is human

It’s also worth considering the somewhat unavoidable risk human threat poses to large institutions given the number of people they employ. It goes without saying that the potential for human error increases exponentially the bigger a work force is.

Our Penetration Risk Report found that people remain companies’ biggest weakness – across all sizes and sectors. Whether through human error or creating opportunities for social engineering hacks, the chances are that your staff will be your cybersecurity Achilles’ heel.

Accountancy giant Deloitte was targeted last year as hackers got hold of confidential data via an administrator’s account which had only single-factor authentication in place. In this case, it’s likely that access was achieved after the account password was exposed through phishing – where hackers pose as a trustworthy entity (usually via email) to obtain sensitive information such as usernames and passwords.


Fortunately for the majority of the businesses mentioned in this article, the breaches and failures fell before the arrival of GDPR. British Airways, however, is the first high profile business to experience a major data breach since new rules came into force in April. The new rules outline that a business can be fined as much as 4% of turnover if it has failed to take technical precautions to protect its customers’ data. Unfortunately for BA, if it is found to have failed in that duty of care, then its fine could total £489million.

On top of reputational damage, the proportionate nature of GDPR means that, more than ever, cybersecurity is an issue big businesses can’t afford to get wrong. The days of thinking ‘bigger is always better’ are numbered.




Coalfire is the trusted cybersecurity advisor that helps private and public-sector organisations avert threats, close gaps and effectively manage risk. By providing independent and tailored advice, assessments, technical testing and cyber engineering services, we help clients develop scalable programs that improve their security posture, achieve their business objectives and fuel their continued success. Coalfire has been a cybersecurity thought leader for more than 17 years and has offices throughout the United States and Europe.

For more information, visit



The Coalfire Labs team leverages highly skilled penetration testers with focused expertise in helping organisations of all sizes improve their security posture by thinking and acting like an attacker. Coalfire Labs simulates threats, evades your defences, and hunts for active breaches in your environment, and then helps you understand the risk and impact to your organisation.




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