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*Easy* to solve SME challenges – Financial Services

by Eamonn McMahon

After a few days of hiding my pink Irish skin from the Spanish sun and a not so enjoyable ear infection, its back to the knuckle duster. Today I’m going to begin discussing a few of the *easier* to fix hurdles that many UK SME businesses face on a daily basis. I write the word ‘easier’ with a double asterisk because while these hurdles are easily jumped, some require a change in culture and others will take time to implement.
Over the course of five blogs I will briefly run through the following topics – 1.) Unnecessarily slow and arcane Financial Services, 2.) Highly restrictive health and safety regulation that often ignores any degree of cost benefit analysis 3.) Poor outdated transport infrastructure 4.) Disarray in taxation and accountancy governance 5.) Employment law confusion. The discussions will be brief – this is a blog, not a collection of essays but I would be happy, in fact delighted, to discuss any in more depth – best to email me at eamonn@barnsburyroadfinance.com

Unnecessarily slow and arcane financial services:

Finance is the electric current that charges commerce..  kind of keeps the dance floor jumping. It’s functionality is critical and for the atypical small or medium sized business, financial services should be relatively straightforward. Unless your business takes considerable risk through operating in high risk sectors or in a high risk geographic area, the directors have a questionable past or is engaged in financial services itself, financial services should be as easy to understand and navigate as a connection to the electricity grid!

Shall we increase the power slightly?

The problem is that financial services in their current form take up too much time, are overly complex and have too many unnecessary layers of intermediation that add excessive cost. In part the government is to blame with regulation overload and politically motivated, knee-jerk reactions but in part the banks are just too bloody hard-headed!


1.) Business Banking

First of all small business banking..  I recently opened up a HSBC account for my small business. In credit to the bank the process was at least clear and the technology was impressive (self verification of identity etc). Nonetheless the whole process still took over three weeks from beginning to end. From research, the average time needed to open a small business account in the UK appears to be 15 days which is madness. Clearly banks are under great pressure to carry out KYC checks and to complete due diligence but as somebody who has experience in banking I can say that for 90%+ of new businesses the process, with recent advancements of technology, should be semi automated and incredibly quick.


2.) Asset Finance

Secondly, focusing on Asset Finance, where my new start-up Barnsbury Road Finance will modernise process and pricing. From research and feedback i’m hearing in meetings, it is clear that this function is far too complicated for the typical business customer who merely require a quick, low-cost, flexible means of asset acquisition. With the provider of a lease or the lender of a secured loan, having recourse to the asset in question, the financial risk is relatively low, which is often not appropriately reflected in the pricing of the finance. The operating costs should be minimal with economies of scale and best-practice technology use. The fact is 95%+ of the assets acquired with asset finance are easily priced, relatively liquid forms of transport, equipment or machinery. Nonetheless the asset finance industry uses a vast array of documentation, superfluous intermediaries and added complication/mostly fluff to extract as much slice from the pie as possible. We need asset finance to be more ‘electricity-like’ / commoditised, quicker and ultimately facilitating SME growth.


3.) Bank charges

Thirdly, bank charges.. why so crazily complicated? I just received a 20 page booklet of fees and charges for my business account and this is just one level of account with multiple business accounts offered. Do the banks seek to knock out our ability to compare accounts by constantly changing and overly-complicating charges? Death by a thousand cuts almost..  Surely for UK focused business that don’t export there could be an all encompassing monthly fee that includes everything. Perhaps two fees, one for business that deals with cash and one for business that don’t but 20 pages of charges…. really?


4.) Invoicing

Finally invoice/accounts payable management. I am somewhat bewildered as to why so many B2B SMEs fall into the situation of having to offer their customers 60 or even 90 days to pay bills! In fact there is an entire raft of fintech start ups focused on purchasing and automating invoice collections. How on earth did we end up in such a dire situation in the first place!? This is not 1979 with a 17% Bank of England base rate – Yes cash flow is, of course, being wrestled for but couldn’t we all be a little more reasonable settling bills! Imagine how employees would react if they were paid 60 or even 90 days after working or how a bank would react if a mortgage payment was 90 days late – probably foreclosure and repossession by then. And yet the stationary maker who provides a high street bank with, for instance, envelopes, is probably paid 60 days after delivery.

In the days of electronic invoices and instant bank transfers why is this tolerated? Long payment terms are justifiable for perhaps, very large ticket items that are ultimately sold on after some minimal value-add but it is clear to me that the broader business economy should pay for items either at point of sale or within a small number of days..five days maximum. Of course if one business does this by themselves their cash flow is penalised but if bit by bit we collectively pull in terms, then everybody, as a whole, will benefit!

Until the next in the series when I discuss the madness of Health and Safety regulation, probably best to just save some energy.