UNBIAS to reduce cash-flow risks for SMEs

The European factoring market is growing rapidly and was estimated to be 1.26 trillion Euros in 2017. Yet, smaller companies are still going bankrupt because they are having trouble turning their outstanding sales into cash. SMEs are the engine behind the European economy and need to pay extreme attention to their cash flow to minimise the risk of insolvency. However, they currently have limited possibilities to help them predict and manage this. One way is invoice factoring - advancing invoice payments by selling them to a factoring company - yet, SMEs are not yet fully reaping the benefits. If we look at the Netherlands as an example, the factoring market grew from 58 billion Euros in 2014 to 90 billion Euros in 2017. While at the same time around 750 Dutch SMEs went bankrupt due to delayed payments.

To counteract this trend, the EIT Digital Innovation Activity UNBIAS provides trusted information and payment routing services to sellers, buyers and factors. UNBIAS allows sellers to supply goods or services on credit to better manage their cashflow, selling invoices to a factor at acceptable terms. Meanwhile, buyers can rest assured they are settling the bill with the right party, regardless of their supplier’s invoice payment terms.

“In the UNBIAS project, we really focussed on finding a solution for the trusted exchange of invoice information, that benefits all parties potentially involved in a transaction, from invoice creation to settlement,” says Ronald Hoeksma, Technology Director at INNOPAY and activity leader of the UNBIAS project.

Ronald Hoeksma“We set out to help SMEs get better access to invoice financing options. They needed to be able to prove their trustworthiness as well as the validity of invoices to financiers. We could use our knowledge and experience with identity systems and blockchain projects to create a large part of the solution. But we soon realised that the solution would only be viable if it provides value to buyers as well. We consulted many parties and eventually concluded that the solution lies in the provision of invoice settlement services on top of the risk rating services already foreseen. UNBIAS is now a complete solution that benefits the ecosystem, as well as individual roles within the ecosystem,” Ronald continues.

Buyers prefer to pay late, as a form of cheap credit and SMEs have limited bargaining power when selling to large buyers. Buyers, at the same time, are discouraging their suppliers to sell their invoices to factors in order to avoid settling risks. There’s much to be gained for the economy, if SMEs had better options for turning sales into cash through quick factoring. So why is this not the case?

Factors are often biased against SMEs, classifying them as relatively high risk on the basis of historic company profile information. However, the actual risk on individual invoice financing can be much lower than anticipated. The core problem lies in the cumbersome and untrusted exchange of individual invoice information data in risk assessment processes. Financiers want to check with the buyers that the invoices are correct. However, these two groups are not incentivised to cooperate. Invoice information requests cost buyers time and money and even worse, the sale of invoices by their suppliers introduces them to settling risks.

UNBIAS helps to improve the situation, by standardising invoice data exchange and focusing on data protection and irrefutability through the use of blockchain technology. The data is then used to provide risk assessment information, as well as payment routing services to benefit all parties involved in a transaction from invoice creation to settlement.

INNOPAY has built several prototypes along the way to help feed discussions with the market during the value proposition definition phase.

“We are now working on the development and roll out of software and services for a commercial pilot,” Ronald explains. “There’s nothing like experience on a project like this, hence the early development of prototypes in our Experience Lab. We’re now in talks with partners to actually test and refine the platform in the market in 2019.”

UNBIAS is developed by EIT Digital partners and digital transaction experts INNOPAY and the University of Trento.

EIT Digital seeks to generate significant innovations from top European research. The objectives are incubation, market uptake and rapid growth of these innovations. As such, investments are focused on a limited number of innovation areas selected for their European relevance and leadership potential - the Innovation Action Lines. We currently have five action lines: Digital Industry, Digital Cities, Digital Wellbeing, Digital Infrastructure and Digital Finance. UNBIAS is an innovation activity from the Digital Finance Action Line which was set up in 2018 to support the creation of innovative tools and services to help the finance industry adapt to the challenges it currently faces. Robust yet agile and tailored financial services are essential for our economies, citizens, and enterprises.

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