August 27, 2013
One of the most common problems that Small and Medium Businesses (SMB’s) face is that of cash flow. Even though the sales numbers look good, the high outstanding receivable is the main cause of cash flow problem in SMB’s.
Gocardless a UK based payment firm works with SMB’s to accept direct debit payments and solve their late payment woes affecting cash flows. Found in 2011 by Matt Robinson, Tom Blomfield, Hiroki Takeuchi Gocardless aims to make payment collection simpler for SMB’s through collecting direct debits online.
Gocardless is high on investor’s confidence and has recently picked up funding of about $4.8 Million from US and UK based VC’s like Y-Combinator, Passion Capital and Accel Partners.
In an interview with Tech City News, Tom Blomfield on their business model stated that We allow business owners to set up a direct debit at the start of the relationship, so money owed gets pulled directly from customers’ bank accounts when the payment is due. It solves the late payment cycle.
Banks in the UK are not interested in the direct debit market for the SMB’s as they have tie ups with larger corporations. This is where payment startups like Gocardless are capitalizing and reaching out to SMB’s for business. Businesses end up pay a transaction fee of 1 percent capped at £2 for services rendered by Gocardless.
In one their recent moves Gocardless is partnering with Sage 50 Accounts system which has a large user base of SME’s in UK. Through this partnership Gocardless aims to offer its customers ability to accept & manage a direct debit payment within their Sage accounting software. The company also has its sight set for next year on expanding into other European countries.
LTP View: The business model is quite simple and attacks one of the biggest problems for SMBs. Would it be effective? The business certainly has potential and is evident with the VC community backing up. The big question however is that, will the clients of SMBs agree to adopt such as system and do direct debit transfers? It will also be interesting to see how such business model fares up in emerging countries.