Innovative platform to help kickstart SMEs

Suncorp says it is making it easier to start a business in 2017 with the launch of Suncorp Start Company.

Suncorp Start Company, a new online platform, brings together a diverse range of services and solutions to create a user-friendly guide for aspiring entrepreneurs.

Suncorp Customer Platforms Chief Executive Officer Gary Dransfield said the website connects customers with resources like legal and accountancy documents, business name registration forms and website development tools, which are essential to starting a business.

“It also provides access to educational tutorials, tips and plans to help recently established and trading businesses to take the next step,” Mr Dransfield said.

“Our research tells us that small businesses want to spend more time on building their business, not completing paperwork – early access to the right tools and information can set them up for faster success.

“With Suncorp Start Company we consolidated solutions from our partner companies and insights from customer feedback to develop a product which solves problems and helps to meet their needs.”

The new platform follows Suncorp’s partnership with 9 Spokes to bring to the market ‘Suncorp Business Toolbox’ – a business dashboard that enables customers to gain insights across their business.

“We know small businesses are busy. Suncorp is committed to making it easier for them to achieve their financial goals through solutions and services which are easily available as part of our new Marketplace strategy,” Mr Dransfield said.

How speeding up payments to small businesses creates jobs

From The US Conversation.

Speeding up payments to SME’s would have a major positive impact. Operating a small business, the backbone of the U.S. economy, has always been tough. The same is true in Australia, and cash flow is a major challenge, as data from our SME survey shows:

According to The Conversation, SME’s also been disproportionately hurt by the Great Recession, losing 40 percent more jobs than the rest of the private sector combined.

Interestingly, as my research with Harvard’s Ramana Nanda shows there’s a fairly straightforward way to support small businesses, make them more profitable and hire more: pay them faster.

A major source of financing

When a business is not paid for weeks after a sale, it is effectively providing short-term financing to its customers, something called “trade credit.” This is recorded in the balance sheet as accounts receivable.

Despite its economic importance, trade credit has received little attention in the academic literature so far, relative to other sources of financing, yet it is a major source of funding for the U.S. economy. The use of trade credit is recorded on companies’ accounting statements as “trade payables” in the liability section of the balance sheet. According to the Federal Fund Flows, trade payables amounted to US$2.1 trillion on nonfinancial companies’ balance sheets at the end of the third quarter of 2006, two times more than bank loans and three times as much as a short-term debt instrument known as commercial paper.

Recent news reports have highlighted the problem of slow payments to suppliers as large companies extend their payment periods, often with crushing results for small businesses.

Other countries have tried to reform the trade credit market, especially in Europe, where a directive was adopted in 2011 limiting intercompany payment periods for all sectors to 60 days (with a few exceptions).

In an earlier paper, I showed that requiring payments to be made within shorter time periods had a large effect on small businesses’ survival when it was adopted in France. Receiving their money earlier led them to default less often on their own suppliers and their financiers. Their probability to go bankrupt dropped by a quarter.

Accelerating payments

To learn more about the impact of such reforms in the U.S., we studied the effects of speeding up payments to federal contractors.

The QuickPay reform, announced in September 2011, accelerated payments from the federal government to a subset of small business contractors in the U.S., shrinking the payment period from 30 days to 15 days – thus accelerating $64 billion in annual federal contract value.

Federal government procurement amounts to 4 percent of U.S. gross domestic product and includes $100 billion in goods and services purchased directly from small businesses, spanning virtually every county and industry in the U.S. In the past, government contracts required payment one to two months following the approval of an invoice, with the result that these small businesses were effectively lending to the government – and often while doing so, they had to simultaneously borrow from banks to finance their payroll and working capital.

Our research shows that even small improvements in cash collection can have large direct effects on hiring due to the multiplier effect of working capital. On average, each accelerated dollar of payment led to an almost 10 cent increase in payroll, with two-thirds of the increase coming from new hires and the balance from increased earnings per worker. Collectively, the new policy – which accelerated $64 billion in payments – increased annual payroll by $6 billion and created just over 75,000 jobs in the three years following the reform.

To give an example, take a business selling $1 million throughout the year to its customers and being paid 30 days after delivering its product. It therefore has to finance 30 days’ worth of sales at any given time (or 8 percent of its annual sales). As a result, it constantly has about $80,000 in cash tied up in accounts receivable.

A shift in the payment regime from 30 days to 15 days means that the firm has to finance only 15 days of sales, or $40,000. And that would in turn help it eventually sustain $2 million in annual sales and double in size.

Holding back growth

These findings confirm the widely shared belief among policymakers and business owners that long payment terms hold back small business growth.

They also raise the question as to why the economy relies so much on trade credit if it costs so much in terms of jobs, and whether other policies might be undertaken to reduce it. An interesting follow-up policy to QuickPay was SupplierPay. In that program, over 40 companies including Apple, AT&T, CVS, Johnson & Johnson and Toyota pledged to pay their small suppliers faster or enable a financing solution that helps them access working capital at a lower cost.

It is likely that more information on customers’ quality and speed of payments would allow suppliers to choose whether to work with businesses that pay more slowly. So following a “name and shame” logic, companies might feel they have to accelerate payments not to be perceived as bad customers.

The broader impact

Would it make sense to sustain and extend this policy?

An interesting aspect of our analysis is that the effect of QuickPay depends on local labor market conditions. It was most pronounced in areas with high unemployment rates when it was introduced. Elsewhere job creation was limited.

The reason for this is that helping small businesses grow gives them an advantage over other companies operating locally. By hiring more, these small business contractors make it harder for others to do so. Unless there is unemployment, this crowding-out effect offsets the employment gains of the policy.

As such, such a policy will be effective in stimulating total employment only in areas or times of high unemployment.

Author: Jean-Noel Barrot, Assistant Professor of Finance, MIT Sloan School of Management

Bank of Queensland Completes $20 million acquisition

Bank of Queensland has completed the $20 million acquisition of Centrepoint Alliance’s premium funding business as it targets profitable niche lending says AAP.

Centrepoint Alliance Premium Funding, which makes about 30,000 loans annually to small and medium sized enterprises, is a bolt-on acquisition that will be rebranded as a new division within the lender’s existing BOQ Finance unit.

Bank of Queensland shares closed 11 cents weaker at $11.88, in line with the decline in the broader financial sector.

Ombudsman to call on banks to give small businesses three months’ notice before ending loans

From Smart Company.

Australian banks would be required to give small businesses at least three months notice before ending or substantially changing their loan, if a recommendation by small business ombudsman is adopted.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell has been “forensically” examining how the big banks treat their small business customers since August and her report into the banking sector will be released tomorrow.

Read more: Should small business loans be capped at $1 million?

The report is expected to include a series of recommendations to the federal government, including changes to how much notice the banks are required to give their small business customers.

According to Fairfax, the recommended notice period could be up to six months for businesses with rural properties or complex structures.

“The reality is that business loans are regularly ongoing—you might borrow to buy a business or set up a business, you expand and pay some back, and then you borrow more,” Carnell told SmartCompany.

“Business loans are not like home loans. They are ongoing, they go up and down depending on where you are in the growth of your business. It’s a huge problem if a bank decides not to refinance.”

While the full details of the recommendation will be made available when Carnell’s report is made public this week, she said throughout the inquiry’s public hearings that this issue of communication is a matter that needs to be “addressed urgently”.

“What we found in a range of the cases we investigated, what’s happened is the business has been given the expectation that they will have a new loan or their loan will roll over, [and] discussions … have been positive,” Carnell says.

“And then, sometimes days before the loan is due to finish, they’ve been told that the bank has decided not to refinance.

“The dilemma is small businesses don’t usually have lazy money ready to pay the bank back. In a number of cases, it’s meant the company or business has been forced into receivership.”

This starts a domino effect for businesses, says Carnell, as the moment a bank decides not to refinance a loan, the business’s loan is in default and the interest rate on the amount owed can increase substantially.

“Not only are you having to repay money you don’t have, but the cost of that money increases significantly,” she says.

Businesses will then attempt to secure finance from another lender, but having a loan in default with the first bank makes that even harder.

Carnell says having enough time to secure a new loan, sell existing assets or restructure a business is critical in this situation.

“I think three months is the absolute minimum, but it will regularly take long than that,” she says.

“It certainly shouldn’t be shorter than three months.”

While Carnell is clear that lenders are well within their rights to choose not to finance particular businesses, she says the current 10-day notice period included in the Banking Code of Practice is “obviously not doable”.

Ombudsman grills bank executives on SME lending

From Smart Company.

Small and medium businesses can today and tomorrow tune in to watch executives from Australia’s big banks answer questions about their track record when it comes to SME lending.

Payment-Pic

The federal government gave Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell the task of “forensically” examining how the big banks treat their small business customers in August.

Carnell’s review will involve two days of public hearings, which kicked off this morning with representatives from ANZ.

Private hearings have already been conducted and Carnell and her team are in the process of finalising recommendations to government, having also examined individual cases raised by the Parliamentary Joint Committee on Corporations and Financial Services.

Carnell said on Monday the public hearings will involve questioning the banks on potential reforms to ensure small businesses are protected from unfair treatment by Australia’s banking system.

“A range of themes have emerged during the ASBFEO inquiry process, and a number of potential reform measures have been identified as significant and necessary to a robust relationship between financial institutions and their small business customers going forward,” Carnell said.

“We’re interested in hearing from the banks about their procedures in relation to loan contracts, dispute resolution services and the treatment of valuations, and we will press them on their willingness to change their approach to things like monetary and non-monetary defaults, and the role of administrators in relation to small business bank customers.”

Representing ANZ at this morning’s hearings is deputy chief executive Graham Hodges, small business banking general manager Kate Gibson and customer advocate Jo McKinstray.

One of the first topics of conversation was the $1 million turnover cap that ANZ has in place as a definition of small businesses, and whether this is an appropriate definition. The definition is in part based on ANZ’s retail credit model, as opposed to the wholesale credit model, which is in place for larger enterprises.

When asked if that definition is adequate, particularly when financial institutions in other jurisdictions like the European Union are considering doing away with a definition of a small business completely, Hodges said ANZ believes “the current definition broadly covers the section quite well”, with businesses then moving into brackets of up to $3 million in turnover, and between $3 million and $5 million, as they grow.

Once they reach those levels of turnover, they require an “increased level of sophistication to manage their accounts”, he said.

Carnell responded by saying her objective is to ensure SME banking definitions and practices are “understandable for a group of people that matter to our economy, who don’t have in-house lawyers, who don’t have an in-house accountant”.

“We’ve got to make the system as simple as possible,” she said.

“I understand banks needs to manage risk. I think the important issue here is manage risk, not avoid risk, and therein lies the balance.”

How to watch the hearings

A live stream of the hearings is available from the ASBFEO website here.

There are three options to listen to the proceedings: by calling in by phone, by listening to an audio stream, and by watching a live video stream.

SMEs Unlikely To Switch Banks

As we continue our series on the results of our SME surveys, we look at bank switching behaviour. Satisfaction levels with their banks are pretty bad, but there is something weird here, because whilst three-quarters of SME’s say they would consider switching banks, in practice they rarely do.

More SME’s are dissatisfied with their current banks. We see significant polarisation, with some feeling completely satisfied, and others completely dissatisfied.

switching-nov-16-satisfactionAn analysis at the segment level reveals that more established, larger businesses tend to be more satisfied, whilst smaller and growing businesses are generally less satisfied. Those borrowing are less satisfied.

switching-nov-16-seg-sat The average number of bank products varies across the SME base.

switching-nov-16-productsHowever, on a segmented basis, larger businesses tend to have a greater number of products.

switching-nov-16-seg-prodAround three quarters of SME’s said they would consider switching.

switching-nov-16However, from the time with bank data, we see that most stick with their existing relationships.

switching-nov-16-time Our analysis suggests three reasons for this. First, many perceive little or no differentiation between banks, so there is no point in switching. Second, their current bank has provided facilities which make it hard to switch, including secured loans, credit cards and payrole services. Third, some have sought to switch, but have been unable to replicate the current facilities they have from their current bank.

More generally, because time is money, many SME’s experience inertia, because they are focusing on their business, not their banking.

 

SME Business Confidence – A Curate’s Egg

As we continue our journey across the latest SME survey data, today we look at the latest business confidence scores. We ask a series of questions about hiring plans, sales expectations, profit margin, borrowing plans and other factors, and distill this into a relative numeric score. Essentially, the higher the score, the more confident the business. This is important because confidence is directly linked with business investment and jobs creation.

We find that generally businesses who are formed as a company are more confident compared with those who are not; and those willing to borrow are more confident than those who do not.

confidence-nov-16-structureWe also found that businesses with smaller turnover were significantly less confident, compared with those with larger volumes. This is a problem because there are many more business with smaller than larger turnover (note the yellow line – distribution of businesses – is a log scale).

confidence-nov-16-turnoverScore by industry varies, with education and training the most positive and mining the least positive.

confidence-nov-16-industryOn a state basis, VIC and NSW businesses are the most confident, whilst those in NT and WA are the least positive.

confidence-nov-16-stateWe also find considerable regional variations, with those closer to a CBD more positive, whilst those in regional and remote areas are less positive.

confidence-nov-16-zoneFinally, we look across our SME segments, we find that career switching start-ups are the least confident, whilst large established firms are most confident.

confidence-nov-16So, if you are a small business based in regional WA, you are most likely to be feeling less confident about the future of your business, compared with a large established business in VIC or NSW CBD. A Curate’s egg indeed!

Next time we look at SME’s banking relationships.

SME’s Are More Connected Than Ever

We continue our series on the results from our latest SME surveys. Today we look at the digital trends of SME’s. On average, around 13% of firms are digital luddites – meaning they hardly use digital at all, but the rest are digitally aligned. This means they prefer using a mobile device, are likely to be using social media, and to use cloud based services.

We separate these digitally aligned firms into those who are natives – meaning they have grown up digital, and those who have migrated to digital. Natives have a much higher propensity to adopt new technology, and are much more interested in Fintech offerings.

Things get interesting when we look at the segments.

nov-16-technoThis is reflected in their preferred channel for banking. More than ever are now wanting their banking delivered via apps, or smart phone. Bank branches are important, for a minority, mainly because of the need to handle cash. The channel mix does vary by segment.

nov-16-techno-channelMany firms are now connected 24×7, but this does vary by segment. Around 20% are hardly online at all. This highlights the need to bankers to have an appropriate set of channel strategies for their SME customers. Many do not.

nov-16-techno-timeMore are using smart devices as their main device. Some still use personal computers.

nov-16-techno-deviceAwareness of cloud delivered services is increasing, and once again we see some interesting variations across the segments.  Digital natives are most comfortable.

nov-16-techno-cloudFinally, awareness of Fintech alternatives to the banks continues to grow. Again, digital natives are most comfortable and most likely to consider applying for funds from non-conventional lenders.

nov-16-techno-fintech   Next time we will look at business confidence, which varies across the segments, and across states.

 

 

SME’s Are In A Cash Flow Squeeze

In the second of our latest posts using data from our SME surveys, we look at how and why firms borrow.

Some firms will simply not use credit at all, and we find that on a segmented basis, there are significant variations. For example, almost all Cash-Strapped Sole Traders will be seeking credit, whilst only 30% of Career Switching Start-Ups will borrow. Most banks do not segment their business effectively, so do not understand these important differences. There are also very different credit risk and default profiles.

sme-nov-2016-credit-useFor those who will borrow, there are many reasons why they need funds. However, the number one need is for working capital.

sme-nov-2016-main-need Within working capital the main reason is delayed payments (43%).

sme-nov-2016-wc-needThis is because the average number of  debtor days continues to blow out. More than 50% of payments are now being settled beyond 50 days. Large firms and government departments are the worse payers.

sme-nov-2016-debtor-daysFirms in WA and TAS have the longest wait times for payment.

sme-nov-2016-dd-statesThere are also some variations between industries.

debtor-daysFinally, we see that the average loan and card balance varies wildly across the segments. Note this chart shows the value on a log scale.

sme-nov-2016-balances We do not think the underwriting standards in many of the banks take sufficient account of the variations between firms. As a result, many are not able to gain the funds they need, whilst others are regarded as more risky than they really are. Time for better segmentation.

Next time we look at how firms are using technology, and how they view Fintech alternatives.

SME’s At Risk From An “ATO” scam – fake emails again

From ITWire.

Cyber criminals always search for the motherload – phishing emails that get through. This time they have targeted small to medium businesses that that lodge Business Activity Statements (BAS) online.

ATO scam email jpg

The Australian Internet Security Initiative (AISI) part of the Australian Communications and Media Authority (ACMA) has issued a warning over what is one of the most sophisticated spear phishing campaigns yet.

The emails come from BASnotification@atogovau.org and state that your next activity statement is now due. The real email address for the ATO is BASnotification@ato.gov.au. It is very well done – all links go back to the ATO website except for “Click here to download your statement.”

That link takes you to a fake ATO website that can download malware designed to steal your online banking and other credentials and can potentially open a ‘back door’ that enables installation of malware, such as ransomware.

The cybercriminals have also managed to add atogovau.org to the global list of “approved” domains and added Sender Policy Framework (SPF) that reduces the likelihood of email servers rejecting it as spam.

Protection

  • It comes down to common sense – hover your mouse over all links before clicking. You need to know that atogovau.org is a fake.
  • If the link asks you to install any application, say no.
  • Use paid anti-malware on all critical systems.

Comment

I added the “paid” word to the AISI advice because the majority of these paid protection programs use machine learning to identify scams. For example – and it is only one provider – Symantec has created the world’s largest Global Intelligence Network (GIN) and according to the company it only takes a handful of instances to be identified before it blocks it for everyone.

Also, it has developed phishing website detection that analyses the known websites (ATO.gov.au) and can tell if another is a phishing site (atogovau.org).

It never ceases to surprise me that SMB skimps on security, many still using free or consumer-grade, anti-virus solutions when enterprise-grade will protect from these scams.