How to safely and legally integrate AI for SMEs

AI for SMEs is a hot topic. Whether it is to increase efficiency, build proprietary tech or to keep up with your supply chain, AI is proving crucial to SMEs.

Artificial intelligence was without a doubt the buzzword for 2024, as developments in Generative AI (GenAI) systems such as OpenAI’s ChatGPT, Microsoft’s Copilot and Stability AI’s Stable Diffusion sparked widespread accessibility to AI tools.

Across industries, businesses have vowed to incorporate AI tools into their everyday processes in order to boost productivity and take advantage of this innovation. For SMEs in particular, investing in innovative tools at an early stage in order to streamline your processes and become as efficient as possible could be a game-changer for later growth and business development. The question is, how should SMEs go about this?

Seamlessly automating workflows within your business using AI is easier said than done, especially when there are now so many AI models to choose from, all of which are in various stages of continuing development. There are, of course, risks to incorporating AI models into your workflows, such as implicit bias from input data which may affect your outcomes (in the recruitment sector, for example, the effects of this could be catastrophic). In addition, the first pieces of legislation to regulate AI models and usage are starting to come to light, which may alter acceptable uses of certain AI tools or increase your administrative burden. This article will set out the most helpful ways to use AI within SMEs, whilst also covering the legal requirements surrounding AI tools.

Where to start? How to implement AI to boost productivity and efficiency

It is clear that there are several areas within a small business which are more suited to implementing automation or AI than others. We suggest categorizing tasks by frequency, time consumption, complexity, and value. For effective AI for SMEs, it’s crucial to find the right areas.

In order to find specific tasks which would benefit from automation or AI tools, prioritize functions which have high value, low complexity, and require a lot of time to complete.

These tasks are particularly ripe for automation or AI for SMEs, as this type of work is essential to the business. Small mistakes from human error, which are more likely to occur due to the high volume of work, can lead to large losses. Your manpower should be reserved for highly complex and valuable tasks, whilst utilizing automation or AI tools for low-complexity work to boost efficiency.

Examples of tasks which are suited for AI implementation or business automation:

1. Customer service

2. Onboarding clients/employees

3. Invoice processing

4. Sales orders or inquiries

5. Payroll functions

6. HR and customer information

The importance of compliance with new AI litigation may impact the ways you can legally utilize AI in your business, particularly when considering AI for SMEs and their specific requirements.

Awareness of pertinent legislation is important, as it may affect your business without your knowledge. In particular, the EU AI Act 2024 applies to any business operating within the EU market, but it also applies if the AI software in use operates within the EU (e.g. provides outputs within the EU).

This is similar to the reach of the GDPR (the General Data Protection Regulation). There are also legal implications from a data protection perspective, as businesses are now required to complete an AI Impact Assessment, similar to a Data Protection Impact Assessment.

The EU AI Act categorizes AI models into risk levels, and those with ‘unacceptable’ risk are prohibited, such as social scoring systems and facial recognition. It also introduces transparency and disclosure requirements; for example, providers of general-purpose AI models must draw up and make publicly available the content used for training the model (the inputs).

Importantly, the Act introduces provisions that require human supervision of AI for accountability purposes, especially where there is a possibility for discrimination (e.g., if AI was used in a recruitment context). The Act was introduced on August 1, 2024, but most provisions have a 2-year period before their obligations will be enforced. The broad reach of the Act means it is exceedingly important for SME owners to be aware of their legal responsibilities about AI usage.

Final words – AI for SMEs

AI is an incredible tool that can make a real difference to SME owners by boosting efficiency and productivity in crucial areas of the business. Nevertheless, it is essential that AI models are used responsibly and in line with recent legislation.

The UK itself has not yet released any laws specifically regulating AI; on January 13, 2025, Keir Starmer made it clear in a speech presenting the AI Opportunities Action Plan that the UK ‘will go its own way’ when it comes to regulating AI rather than following the lead of the EU or the US, so these rules may change in the coming months and years. In any case, it is paramount that SME owners remain informed about their various obligations in the ever-changing AI space.

Farringford Legal has supported numerous clients successfully integrate AI into their business, and our Data Protection & AI Director Sarah Taylor will be monitoring regulations and advising clients on their responsibilities with AI for SMEs.