Inadequate cash flow can cripple a business and is indeed the main culprit behind failed startups. But a cash flow crunch isn’t just deadly to one business. Inadequate funds mean an SMBs haven’t the money to pay its own suppliers, meaning that cash flow crunch then spreads down the supply chain.
This is a particular issue for the digital media industry, according to FastPay COO and President Secil Baysal.
“The average payment terms in this business can go as high as 90, 120 days,” he told PYMNTS. “That’s the standard, not the exception.”
Fast-growing companies in the digital media space need working capital to survive in that kind of climate, he added, which is how FastPay first launched. But what the company eventually noticed, Baysal says, is that many of the borrowers on its platform were accessing financing and then immediately using it to pay their own suppliers.
“A lot of our borrowers who are getting paid with long payment terms also have to pay their bills more frequently,” he said. “For instance, you might be getting paid in 90 or 120 days, but you still need to pay your own suppliers in 30 or 60 days. That creates a liquidity challenge and puts a constraint on your growth.”
This “mismatch” between receivables and payables, as he put it, is prominent in the digital media industry.
FastPay’s response to this is to integrate a supplier payment capability into its offering, an effort to cut out extra steps for its businesses that borrow money and use it to pay invoices. To do so, the company has launched COMPLETE, a solution developed in partnership with Comdata and AFEX, with Comdata providing supplier payment capabilities and AFEX facilitating cross-border transactions from the same place in which FastPay customers access financing.
These partners, too, highlight the particular needs of the digital media sector, said Baysal, a vertical that not only needs to support supplier payments via multiple payment rails, but also, thanks to the international nature of the industry, needs to support cross-border capabilities, too.
“One of the biggest pain points is around cross-border payments and foreign exchange, which is very important for the industry” he explained. “It’s very global by nature, and small- and medium-sized companies especially still pay a premium in terms of foreign exchange conversation. That’s a really big source of friction.”
Many of these challenges are faced by SMBs in an array of industries. But the particulars of the digital media space aren’t always understood by traditional lenders, Baysal says. Research suggests SMBs experience greater satisfaction with small, community banks and alternative lenders compared with large FIs, in part because a larger bank cannot always give a small business the individualized attention, including understanding of that SMB’s particular market, to adequately service the borrower. For SMBs and larger corporates in the digital media space, that means speed and flexibility with their finances, according to Baysal, with lenders understanding that cash flows can change day to day.
By linking financing to supplier payments, he added, a solution can address some of the industry’s unique cash management demands, often made even more burdensome because, as Baysal explained, it is not uncommon for companies in this space to experience even a 300 percent growth rate. Expansion of that magnitude demands cash management agility, even if corporate customers are going to wait 120 days to pay.
“Reducing the number of days in payment terms on both sides makes it much more simple,” he said. “Combining a payment solution with our financing turns it into a one-step process and makes it easier to offer financing downstream. Now you can get paid faster along the entire supply chain.”