Why the idea of a 'frictionless economy' is central to small business success


The interconnection between people, technology and business is not a new one. Quite the opposite. But the digital age means the relationship holds more promise for small businesses and their advisers than ever before.

According to the European Commission, an online platform is a business that engages “the use of information and communication technologies to facilitate interactions (including commercial transactions) between users, collection and use of data about these interactions, and network effects which make the use of the platforms with most users most valuable to other users.”

By its very definition, a successful platform can’t be engineered from the top down. Its power lies in the ability to create connections of value for its community, led from the bottom up.

We’ve come to a point where we expect technology to learn the needs of the community and apply modern ingenuity to remove barriers.

And when small business sits at the centre, the power of the platform is pointed toward the need for a frictionless economy.

Small business vies to remain competitive

There are more than two million small businesses in Australia vying to remain competitive in a changing commercial world. In fact, 99% of advisors in Australia are small businesses themselves. We need to help these businesses reap the benefits of a digital future.

Imagine you’re a small business retailer in a small country town before the advent of platform technology.

Your customers are local. Your invoices are paper-based. And your financial position is undeterminable – even when you walk to the bank. That’s because you track your payroll in one spreadsheet, your inventory in another, and your accountant has no way of seeing all the information until you email it over, by which time it’s out of date.

SuppliedXero Managing Director Trent Innes.

Now consider you’re the same retailer using a modern cloud-based business platform, like Xero. You have global capacities from day one. You can set up an ecommerce site that links to your accounting software, which syncs with your inventory system – or any number of the 700 other apps you choose to integrate. Not only do you have a real-time view of your finances, because you’re connected to any one of more than 100 financial institutions, you also have the ability to collaborate on a single ledger with any one of the thousands of advisors who also use Xero.

The network effect of global online platforms creates connections and breaks down barriers so that more businesses can thrive. And the work continues.

Australian economy embraces a digital, frictionless future

Here in Australia, we are well positioned to benefit from stronger engagement with digital platforms. Small businesses have embraced technology at a remarkable rate over the last five years and the Australian government is rapidly re-platforming in response. As a result, all business owners will soon be required to report their finances using digital means.

Meanwhile, the federal government is moving toward an industry-wide framework for e-invoicing, which will make exchanging electronic invoices between businesses and government sectors easier, regardless of the software used. With e-invoicing, the possibility of 14 day or lower payment terms becomes more and more likely.

Online payment providers are joining the platform paradigm too. When small businesses can offer more payment options, they can take action against one their biggest constraints, cash flow. Payment times are starting to reduce, albeit slowly.

According to Xero Small Business Insights data, payment times on 30-day invoices in Australia have decreased by three days over the past three years – moving from a 41-day average in 2015 to a 38-day average in 2018. If this trajectory continues, we could see the average invoice paid within a healthier 30 days.

The evolution of platform technology is not scary; it’s human. The more we engage with this digital future, and help small business owners to do the same, the more value it can create for us all.

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