We’re launching iwocaPay – helping SMEs bounce back from the ‘trade credit crunch’ caused by coronavirus

Payment terms can pull buyers one way and sellers the other. iwocaPay helps everyone push in the right direction

5 June 2020

Coronavirus has impacted every sector of the economy and its reverberation on small business has been dramatic. Between 23 March and 5 April 2020, a quarter of all UK businesses ceased trading, and over half of those that continued to trade saw a fall in turnover.

Before the crisis began the small business B2B sector was already concerningly inefficient, and coronavirus is only making it worse. Lengthy payment terms consume time and resources, preventing suppliers from growing their businesses.

With 40% of suppliers owed over £10,000 in unpaid invoices, it’s not surprising that they’re looking to shorten their payment terms to mitigate their risk. At the same time, buyers whose companies have seen a significant drop in turnover are seeking longer terms that allow them more time to pay. With buyers and sellers pulling in opposite directions, a trade credit crunch seems increasingly likely.

“What’s emerging is a concerning game of ‘tug of war’ between small businesses as they look to survive and plan for the future,” says Christoph Rieche, co-founder and CEO of iwoca. “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 help trigger a step-change for small businesses to become more efficient, productive and resilient. We believe the first and most obvious change is to make payment terms fairer between suppliers and customers.”

iwocaPay – fairer payment terms for buyers and suppliers

To make payment terms a win-win for all involved, we’ve created iwocaPay. Launching today, our tool allows suppliers to get paid upfront and on time, while buyers can breathe easy and spread their payments over 90 days. No more wasting time chasing invoices, just more resources to grow your business into what you want it to be.

What small business owners are saying

To inform our research into this issue, we asked over 500 small business owners about how lockdown has changed their business, and how long payment terms hinder their growth and efficiency.

To read the full report, click the button below. Or read on for a summary of our findings.

More buyers owe payments to their suppliers

Since coronavirus hit the UK, the proportion of small business owners that owe large payments to their suppliers has nearly doubled, with 6.3% of surveyed business owners reporting owing between £20,000 and £50,000 to their suppliers.

This is almost double the recorded figure at the same point in 2019, but the problem doesn’t just lie in larger invoices – a fifth of surveyed suppliers also reported that they were owed between £1,000 and £4,999.

Unpaid invoices can be damaging to SMEs, and severely disrupt their day-to-day running. Mike Luxford is the founder of MLCS, a cloud-based internet phone system provider (VoIP). For him, late payments not only cause his business disruption in the moment, but also prevent him from getting new work.

“The first thing I thought when this all started [the pandemic] was, we won’t get paid,” says Mike. “When you're a small business, that’s when the issues start. And it’s a knock on effect – if I’m not getting paid, it clogs up my credit accounts which means I can’t take on more contracts. If someone wants extended terms or huge amounts of credit for no reason, I tend to walk away.”

Buyers want more time to pay

41% of buyers reported having asked for an extension of payment terms in the past 30 days, suggesting that cash flow has been increasingly tight for businesses operating during coronavirus. Buyers are seeking longer payment terms to try and kickstart their businesses back into action, and are keen to reserve payment for when they’re back on track.

A growing number of suppliers want to be paid sooner

To try and prevent the amount of unpaid invoices from increasing any more, 34% of sellers said they were more likely to ask for upfront or reduced payment terms. With 1 in 4 businesses worrying that they won’t survive into 2021, it’s understandable that more suppliers are re-considering the risk around long payment terms.

With iwocaPay, suppliers can reap the rewards of offering long payment terms, without taking on the risk of not being paid.

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Dan is part of the content team at iwoca. He writes articles explaining financial topics, as well as guides on the best support for small businesses during coronavirus.

Article updated on: 11 August 2020

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