SME are forced to put their money into bad investments

The fact is that SME often don't need other people's money if  they would be allowed to keep their own.

Instead they are forced to invest in their customers through extended payment terms. The estimated tie up is around 60 days, which can translate into as much as 20 trillion$ globally. The payment system is also a large ongoing investment where almost 2 trillion$ are shaved off in fees every year and an additional huge amount is stuck in payment float. To put it into perspective: the global GDP is only around 120 trillion$.

The policy makers try to solve this problem through printing money, which means that they encourage increasing SME debt. Why is that so, when most SME in the first place have enough money? Since the regulation in practice prohibits bank funding for SME, the newly printed money doesn't end up with them anyway. This is a circular error. 

The large corporations may consider what it can mean to be good corporate citizens while they accept the deliveries of goods and services immediately but pay for them months later. It is many times a consequence of narrow minded working capital targets and a view that only your own balance sheet is what matters. In today's complex web of physical demand and supply chains we should consider taking an ecosystem view of the whole financial chain too. Financially we often tend to be silo based in lieu of a process and cross-functionally orientation.

American Express is exquisitely putting the finger on the need for increasing the ecosystem perspective in this survey of 250 CFOs from Australian companies with revenues of between $2 million and $300 million. They conclude that the SME don't invest sufficiently in innovation, which forces the large companies in the chain to shoulder a too big role in product development and innovation. Lack of cash is one big reason for the reduced SME innovation.

It's obvious we can expand our innovation capabilities by exploiting the entire intellectual capacity of the whole chain. The challenge is that almost every large publicly listed company has working capital targets making them push debt up and down the supply chain. 

• Large companies cash holdings could release SME funds instead of accepting negative interest rates for less productive investments when their SME stakeholders might be forced to borrow at 20-30 per cent. Obviously the largest risk for supply chain disruptions comes from lack of liquidity. Access of liquidity is seldom a problem; however the distribution of it can be.
• Large companies face the risk of being unbundled by start-ups (here an example of P&G from CB-Insights). Mobilizing their ecosystem of SME could be a good defense strategy. Historically large companies' strengths were built up from huge sales forces and strong brands. These components are not so important anymore when start-ups can use much cheaper means to reach the customers and build a brand. 
• The linkage between innovation and survival is naturally stronger in an SME than in a huge company since the owners and executive management of an SME usually suffer much more personally from failure. This can be used as a powerful incentive. Innovation has to come from within, being part of the company's DNA and a core executive concern. Include all your stakeholders and not only a small dedicated internal team to secure your company's future.

It makes much sense to take a full ecosystem view in the whole demand and supply chain. Make it possible (and worthwhile) for your SME stakeholders by giving them their money back and invite them to build your future market together with you. 

The Talent Show by Treasury Peer in April of this year was the first in a series of events and activities to engage finance executives in the transformation of the corporate financial supply chain.