B2B Payments

How Small Online Sellers' Global Ambitions Complicate Cash Flow

In many ways, eCommerce has democratized the market for small sellers, a group that can now easily reach a global base of potential customers. But that trend has, in some cases, made those same small- and medium-sized businesses (SMBs) less able to access the financing they need to take advantage of the global market.

In the Asia Pacific (APAC) region, small businesses that sell online have a particularly difficult time finding a loan, especially from traditional sources, according to Yochanan Forman-Zvezhinskiy, head of eCommerce at Hong Kong-based SMB and corporate payments company Currenxie.

“Traditional lenders, such as banks, do not effectively finance online sellers, since their core lending products typically cater to more traditional brick-and-mortar businesses,” Forman-Zvezhinskiy recently told PYMNTS of the struggle these businesses face.

Banks tend to shy away from online sellers for several reasons, he explained. Many of these sellers are one- or two-person operations, and their online sales strategies may not make sense to traditional financial institutions (FIs).

“[They may have] very broad and seemingly unrelated product lines, a short history of operates, a lack of adequate or acceptable collateral,” Forman-Zvezhinskiy noted.

Earlier this month, Currenxie announced plans to begin providing trade financing for APAC businesses selling via Amazon. The financing solution comes with a platform that integrates with Amazon sellers' accounts receivables, the company said in its announcement, and links directly with suppliers and logistics providers to pay them on time. Companies repay Currenxie directly from their Amazon sales.

According to Forman-Zvezhinskiy, on top of traditional banks shying away from online sellers, Amazon itself, while its lending business is rising, cannot always meet the needs of the small businesses on its platform. This is because Amazon Lending remains available on an invite-only basis that tends to favor larger sellers, “thus leaving the smaller sellers, who represent the vast majority of the regional market, unserviced.”

Amazon says that while it's lent $3 billion to its SMBs since the program launched in 2011, borrowers are from the U.S., U.K. and Japan, so much of the APAC market is left out of the running for the time being, too.

APAC SMBs' Access To Finance

Small businesses across the Asia Pacific, regardless of how or where they sell, face challenges when seeking financing, Forman-Zvezhinskiy explained.

“The reasons include a relatively less developed lending infrastructure ... across the majority of APAC, as compared to North America and Europe,” he said, adding that risk profiles are also typically higher for SMBs in the region, “particularly from China, where e-selling startups' failure rates are very high. Moreover, the financing methodology of regional lenders is often too slow, highly conditional and highly labor intensive.”

Markets in other geographic regions have been plagued by similar issues, opening the way for alternative lending providers to step in. In fact, Asia Pacific's alternative finance market is one of the largest in the world, according to KPMG, which released a report this year that found businesses secured $93.5 billion in financing from alternative-lenders last year from China alone — a 107 percent increase from 2015 figures.

Outside of China, businesses secured $1.46 billion, a 72 percent increase from 2015 levels, according to KMPG. Marketplace business lending now accounts for nearly a quarter of APAC's total alternative finance market.

Cross-Border Complications

With APAC also a leader in global eCommerce, the challenge of expanding across borders means access to finance can be limited even further, Forman-Zvezhinskiy said. Businesses that sell across borders, and whose supply chains are multinational, can have a harder time accessing financing than companies whose operations are contained in a single national market.

“Cross-border revenues come in multiple currencies and, sometimes, via multiple entities, with different logistics routes and inventory held in several countries,” he explained.

That makes underwriting loans for these businesses a major challenge for lenders, and makes understanding exact cash positions for the small businesses themselves a major point of friction.

Despite the challenges, SMBs across the Asia Pacific are optimistic. Researchers at CPA Australia found two-thirds of small businesses in the region were planning for growth in 2017. Still, access to financing for SMBs remains a challenge, with small businesses in Hong Kong, Indonesia and mainland China reporting the largest declines in their ability to access funds.

Businesses operating across borders may have a bigger pool of potential buyers, but, Forman-Zvezhinskiy noted, it's a double-edged sword in the back-office as cash flow management becomes quite complicated.

“Cross-border selling tends to have longer cash cycles than the intra-border trade,” he said. “In other words, cross-border sellers tend to wait longer than domestic sellers [for] their sales funds to be available for reinvesting back in new inventory and making payments to service providers.”

This can be due to many reasons, from longer timeframes for cross-border buyers to actually receive the bill to financial service providers taking a longer time to complete the transaction across borders.

“Thus, cash flow pressure faced by cross-border merchants is typically stronger,” Forman-Zvezhinskiy added. “Moreover, cross-border revenues often come in multiple currencies — which definitely adds to the complexity.”



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.