Technology holds the key to solving the Covid loan repayment crisis


It is clear that the economic recovery is starting to run out of steam. Shortages of key materials combined with rising prices suggest a “winter freeze” is threatening the UK economy.

Governments can take advantage of new technologies to solve long-standing cash flow problems for SMEs

Amid stagnant growth, recent EY research suggests a third of SMEs fear they won’t be able to repay their Covid loans, while a Moore UK survey found more than 40% are planning layoffs over the course of of the next six months.

Throughout the Covid-19 pandemic, government support has helped small businesses stay afloat. Temporary measures such as furlough and the Coronavirus Business Interruption Loan Scheme have essentially put the economy on life support, allowing businesses to weather the worst of the storm.

That very support has created a huge pile of debt that small businesses are now struggling to repay, with more than £20billion in government-backed loans that are unlikely to ever be repaid.

Thousands of businesses simply do not have the capacity to repay their debt.

cash is king

It is clear that SMEs are strapped for cash, but why?

There is no doubt that the consequences of Covid and the ensuing supply chain issues have increased the pressure on small businesses. A recent CBI survey found that between July and October 2021, two-thirds of SMEs said they fear supply shortages will negatively impact their production in the next quarter – the highest figure since over 40 years.

It would be far too easy to label these challenges as the aftermath of the pandemic. In many ways, Covid-19 has simply exacerbated pre-existing pain points. Chief among them is the problem of slow payments to suppliers.

Liz Barclay, the Small Business Commissioner, estimates that big businesses owe UK SMEs £23.4 billion in late bill payments. This problem has been compounded by the pandemic. Since the start of the coronavirus, an FSB report found that two-thirds of small businesses have been subject to late or frozen payments without clear clarity on when or if they will be paid.

Government-led efforts like the Prompt Payment Code, which signatories voluntarily adhere to, have failed to address the issue of slow and late payments. Even the UK government’s own payment policy only requires buyers bidding on government contracts to pay their suppliers’ invoices within 60 days – which is still 60 days too long.

In addition, these requirements only apply to government contracts worth more than £5 million. With Covid debt owed by small businesses now standing at over £47bn, the liquidity issues facing SMEs need to be put at the top of the agenda.

Turn to technology

So how can banks and corporations unlock this working capital?

To truly tackle the problem of slow and late payments, the government must create a culture of paying bills from day one and provide small businesses with access to affordable and sustainable financing.

AI-powered solutions allow vendors to get paid instantly. Machine learning analyzes past payment patterns to make probabilistic assessments of the few invoices that are unlikely to be paid, allowing the rest to be automatically checked at the point of sale. The result is a win-win solution for all parties involved: suppliers get much-needed money, while buyers repay on their standard terms and strengthen supply chains in the process.

This technology works by leveraging data from large companies or other data sources, such as e-invoicing platforms and accounting systems. When strong cash flows are identified using this data, SMEs can obtain larger loans which are then repaid as they generate revenue.

The burden of Covid loan repayments isn’t going away any time soon and is one of the most serious, yet largely overlooked, pain points hampering small business growth. As we head into potentially challenging times for SMEs, innovative strategies need to be put in place to help small businesses adapt to an increasingly hostile economic climate.

This means moving away from traditional payment practices and leveraging new technologies to solve long-standing cash flow issues that suppliers face. Adoption of this technology by governments and businesses will be crucial if SMEs are to access the cash they need to repay their Covid loans.

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