Accounting for 44% of total U.S. GDP, small- to medium-sized enterprises (SMEs) have long served as the driving force behind the country’s economy, serving as a breeding ground for entrepreneurship and an essential source of employment. Arguably, this group has been affected the most by the COVID-19 pandemic, which has rocked the U.S. economy, with unemployment rising at a record rate and projections of a 5.2% contraction in GDP.
Even before the pandemic began, the median small U.S. business held just 27 days’ worth of cash in reserve.1 With the U.S. leading global charts of confirmed COVID-19 cases, and with localized second waves springing up at the time of writing, the situation has only become more precarious for U.S. SMEs as they suffer acutely from various containment measures, which are having an impact at various points on their supply chains.
A Potential Solution
Indeed, even before COVID-19, SCF was gaining traction in the U.S., with volumes increasing 23% in the first half of 2019. However, SCF programs have historically adopted a one-size fits all approach, often lacking both the flexibility that many SMEs need, as well as proper transparency into the supply chain that lenders demand. Therefore, risk-averse banks and funders have often been reluctant to fund smaller, potentially risky SMEs. Manual, time-intensive and paper-based processes have hampered efficiency and made it difficult for SMEs to access these services, while the process of onboarding buyers and suppliers has typically been cumbersome and slow. This has all resulted in SCF traditionally being viewed as a solution for larger companies with strong and lengthy credit histories.
However, like so many other sectors of the U.S. economy, digital disruption has paved the way for greater access. Today it is possible to connect buyers, sellers and funders on a single digital platform that provides a simple solution for banks and other lenders looking to support U.S. SMEs, ensuring greater visibility over the entire process and more transparency for all parties involved.
Adapting to the Digital SCF Shift
For lenders ready to further digitalize their SCF programmes, care must be taken to streamline processes for both internal teams and their customers, ensuring that previously time-consuming steps such as audit requirements, warranties and SLAs are less burdensome. But while many lenders may look to run these programs in-house, some are turning to technology providers to manage or host this process, helping lenders to avoid retraining or hiring staff.
Demand is also there on a global level. S&P figures showed that SCF revenues grew by 3% to 4% over the first three months of 2020, with this growth largely led by the U.S. McKinsey & Company also estimated there is $2 trillion in readily financeable payables worldwide, so there is a large volume of potential business ready to be tapped by banks and lenders.
