Installment Payment Platforms Can Solve Trade Credit Problems


B2B payments are anything but instant in the U.S., where a collective $3 trillion is tied up in businesses’ outstanding accounts receivable (AR), according to PYMNTS’ The Trade Credit Dilemma Report,

While outdated AR practices are tangentially related to the dispute, this week, Instacart shoppers are planning to protest the delivery company over the way they get paid.

In California, the gig worker protection bill AB-5 was recently passed, making it more difficult for gig companies like Uber and Instacart to classify its employees as 1099 independent contractors. The law goes into effect in January.

These issues aren’t only about gig worker classification and compensation. Freelancers of all stripes — from media workers to construction workers — have trade credit issues. Getting paid in a timely manner is a problem that transcends industries.

The slow, expensive process of handling print invoices is a barrier to smooth cash flow, and small to medium-sized businesses (SMBs) can make their operations run smoother by tapping AR tools for digital payments, electronic invoices, automated processes and more.

The latest Accounts Receivable Automation Report examines the latest automation tools and how these solutions are changing AR for small and large firms alike.

Analog Barriers

One of the biggest challenges in the AR landscape is the stubborn reliance on manual processes. The physical nature of paper-based invoices cause challenges for recipients looking to quickly, effectively and affordably process them.

According to the PYMNTS Payables Friction Index: Barriers to Invoice Automation, such invoices cost businesses $16 to $22 per invoice to process, and 72.4 percent and 43.8 percent are delivered via postal mail and fax machines, respectively. These outdated practices represent one of the most common AR frictions.

Analog processes present challenges for buyers and sellers looking to communicate AR issues, according to Craig O’Neill, CEO of FinTech VersaPay. The company’s VersaPay Arc solution addresses this by making AR more collaborative and providing greater transaction transparency for all parties.

PYMNTS recently spoke to O’Neill about how the company uses automation to address key AR pain points. Part of the problem is that sellers do not focus on how to provide seamless digital experiences. Sellers often get so focused on day-to-day challenges, such as processing volumes of paper checks, that they overlook the importance of customer-facing investments. Automated AR tool adoption begins with sellers realizing that most buyers prefer online interactions.

The future looks promising, according to the Payables Friction Index, however. A majority (56.9 percent) of AP professionals would like to implement eInvoicing innovations.

Installment Payment Platforms Gain Traction

Installment plans have been rediscovered by the retail industry, with companies like Affirm, and Afterpay and blank becoming more popular with online merchants and shoppers.

Bread, a 5-year-old digital payments company, recently launched Bread Edge, a payment personalization engine that is optimized for a shopper’s cart size and can serve up the right payment options at the right time. Bread has also introduced SplitPay, a new low-AOV credit and debit card-based solution that enables consumers to split less expensive purchases into four equal interest-free payments, all on one platform.

Financing company Behalf recently partnered with Ohio-based computer and electronics eTailer CompSource to help the latter offer installment payments and receive funds more quickly from its online sales.

This commerce-related concept of flexible payment timelines has been adapted by SMBs and all sorts of suppliers and buyers.

Entertainment, digital advertising and other digital media companies also need capital to invest in innovations. AIG and FinTech FastPay have partnered to support advertising and media companies’ cash flows by providing loans in exchange for borrowers’ anticipated AR payments.

FastPay also acquired AnchorOps in a deal that strengthened FastPay’s presence on the buying side of media and advertising. AnchorOps provides electronic payments and reconciliation solution for advertising agencies.

AnchorOps President David Frogel explained that payment terms in the ad industry regularly stretch into the 120-day mark. “There’s this issue of sequential liability: Agencies only pay suppliers once they’ve been paid by the advertisers. It’s a chain effect,” he said.