Small Company Banking & the need for Disruption
Do you operate or work at a small company and have problems being paid on time? Or, how about being a small company and not being paid at all? In the five years i’ve operated Tormont Group we’ve had delayed payments, lost payments, clients refuse to pay and other unnecessary and unwarranted issues around our billings. I used to think because of the type of client we represent, generally small cap or private companies that it was really a function of their size and back office(or lack thereof) which was the hold up. At times the company would simply run dry of cash and at other times it was as if the payment was lost in a banking cyber world of clearances and other bank lingo for “you’re being screwed by us.”
Before I dig deeper it’s probably best I state that at time of writing we are in the final stages of a settlement, where a larger client simply refused to pay us…we took them to small claims and eventually they relented, but only after we had to tee up a lawyer to dot the i’s and cross the t’s on the settlement! But we are also missing a payment from a client who runs a private company who is simply out of cash pending their next funding, and have just submitted an invoice this AM to another client who usually pay us a few days late. Needless to say, we are getting screwed by our clients.
When we are paid then something all together new arises. The banking system joins the orgy of beatings! Not only are payments sometimes held for up to a week, however should we be unfortunate enough to receive a cheque we can’t access the capital unless we plead to our local bank manager to make an exception, which he usually does, but this also requires extra steps and time and energy from all sides. And it’s not just the banks who like to hoard our capital for as long as they can, it’s also the outside payment systems…no names to save a defamation suit, but we all know who they are. In fact, these systems are even worse, with transactional fees and delays that really make no sense but contribute well to their margins.
The system is old, antiquated and designed to screw us! The payment systems love rebranding themselves as being leading edge yet they haven’t really changed in decades. The idea of a distributed ledger isn’t new, in fact it was first conceptualized in Early Greek times(actually I don’t know when it was first conceptualized, but I like to think it’s so simple even those old guys in togas thought about it), yet it is kept hidden and tucked away as much as possible by the profiteers that be. For those who don’t understand what a distributed ledger is think about it this way…you have X and Y. X owes Y 100 bucks and not only is that debt on the ledger but when X pays Y their 100 bucks, almost immediately when it is entered on the ledger, the transaction has occurred. Everyone who has access to that ledger sees that transaction and by general consensus it remains valid. There were no transaction fees, delays, lost payments, etc. Welcome to the Blockchain!
In the World of the Blockchain you can’t find one bank globally which isn’t scared shitless of what this concept means to them. Hence all the banks frantically looking for ways to clutch onto this new tech and keep it internal as much as they did in the origins of the internet (recall that the banks in the early 90s pushed for intranet as hard as they could until they just couldn’t keep it under control any longer). Here lies the problem. The banks still control payment and transactional systems and the small business will still get the royal shaft. So where is the solution?
The solution lies in new technology and the development and implementation of a new transactional payment system(s) which automatically allows small businesses to pay and be paid. Smart contracts (agreements which are made between parties and embedded into the ledger) as well as distributed ledger systems not only will allow the small company to operate more efficiently but it will also reduce costs, energy and the ability for clients to screw you!(however, if the client runs out of cash you’re still pretty screwed, but that’s just one of the risks you assume working in the VC space). The current payment systems and the banks themselves will fight this tooth and nail as their existence relies wholly on unwarranted fees, withheld funds etc…in other words their business model is built squarely on screwing their customers!
The need for change is greater than it’s ever been and we have solutions being developed and very slowly introduced. The more small businesses who push for this change the more likely it is to occur sooner. I think there’s an inevitability to it at some point, however those who run the system will do all they can to retain it so the battle remains a challenge. Until then, my contracts with clients will tighten and my lawyer will likely ratchet up more of our money, all while my bank gets richer holding my money and charging me more fees! Sounds like a pretty horrible environment for my small company, however all of that distraction aside the fight goes on and there’s work to do! Thanks for reading my very first blog/gripe/bitch-session. I’m going to try to do one a week going forward….subjects: private equity successes and challenges, small cap market fundings and m&a, and anything else relevant and credible which could add value and help others understand.