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Forecast-based financing for SMEs

Forecast-based financing for SMEs 44

Forecast-based financing for SMEs 45
By Tomas Formanek, CEO and Founder of Inventoro

 

SMEs represent roughly 99% of all companies in the EU and employ as much as 60% of the global workforce. Despite their social importance, they are often left behind in national programs, access to technology and, above all, funding.

Cashflow is holding retail SMEs back and with little to no cash, their ability to compete with major conglomerates such as Amazon, Alibaba, and others, who will never find it hard to access money at scale, needs improvement.

This is especially evident in retail and wholesale e-commerce. Goods sellers worldwide need fast and easy access to cash to keep their inventories full. Given global supply problems, keeping inventories full seems like the best strategy to deal with disruption. Because when they fail to satisfy demand, the major retail barons take their place and stay forever. That’s bad for the market, bad for the economy and bad for the consumer.

Funding for SMEs surely deserves disruption. The traditional model of financing is not fit for their needs. They face silent discrimination by virtue of the fundamental rules of the traditional banking system.

Major banks (despite their massive investments in IT in the last decade) remain a one-trick pony. “Show us your historical profits and our computer will tell you if you are eligible for financing or not”, they say. But that’s not how companies work in today’s fast-moving world. Retail and wholesale companies produce huge amounts of data each day that can be analysed in real-time, giving the financing institution more scope into the actual health and needs of an organisation, especially as they grow.

The global pandemic saw huge growth in retail and e-commerce. We literally saw small one-man bands skyrocket into middle-size companies. However, this staggering growth is too fast for many businesses to deal with. We talk to business owners on a daily basis and hear the same words again and again: “We live day by day; we basically hold the company together with magnets and hope it will last”. 

We operate an inventory forecasting company, inventoro.com. We forecast future sales of clients based on their historical data with high accuracy. And we see the needs for cash. We live the struggles of retail SMEs from a very close perspective, something that has been bothering us for a long time, and something we aren’t alone in.

Disruptive financing startups have quickly emerged. We chose Flowpay.io as our partner and they now run our pilot, giving our clients easy access to funding.

The principle of our partnership is simple. Our AI predicts our clients’ future sales and values the perfect amount of inventory that needs to be ordered from suppliers to match consumer demand. This places a very exact, very business-associated price tag on the financing needs of our clients. We share this data, upon the client’s consent, with Flowpay.io. They plug this data into their learning algorithms and within minutes create a one-click offer directly to our clients. If they agree, they receive cash within the next 24 hours, just like financing should really work for anyone.

Disruptive data-driven startups emerge everywhere. We are at the forefront of a financing revolution for SME companies. Wayflyer.com is already an established data-driven financing startup with over half a billion USD in e-commerce business funding. They naturally saw an opportunity in inventory planning and the associated financing and started their own inventory management services earlier this year.

Data-driven fast and easy access to cash will become the norm. It is tailored, it is unbiased and it is low risk for the financing institution if the data source is rich. Access to data-driven financing is associated with access to super-IT, which takes us to our last point.

Most SMEs, retail or not, are still Excel managed. This creates an unsustainable technological divide between the small and the super-powerful conglomerates. All those major data houses, all the best AIs, all the top-rated developers of Amazon, they all create an environment that simply gives little to no chance for smaller companies to compete.

But the process of so-called “democratisation of technology” is quickly changing the landscape. AI and other cutting-edge technologies are no longer a luxury of the enterprise. Accessible, easy-to-set-up SaaS tools create a plateau of opportunities for our local heroes at an affordable price.

Small companies have access to cutting-edge technology like never before. This creates a double-positive effect. Not only can they immediately cherish the benefits of data-centred algorithms. Further machine-to-machine communication can increase the benefits as SaaS startups become interconnected with APIs. Such connected environments create cases for data-driven financing and will surely become the new norm for SMEs. Indeed, it is already happening.

 

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