The invoice is a powerful source of financial data. For lenders, those documents provide insight into a business’ health, but with late and delayed B2B payments as a continuing problem for the small supplier community, an invoice sent doesn’t always mean an invoice paid.
For Rohit Arora, CEO of SME lending platform Biz2Credit, the financial data provided by these invoices, combined with the need for small suppliers to access working capital due to unpaid invoices, led the firm to integrate its lending solutions into the Tradeshift platform, a pairing first announced earlier this month.
“We are a cloud-native company in the lending space, while Tradeshift is a cloud-native company in the invoicing space,” he said in a recent interview with PYMNTS, discussing a collaboration with the online eInvoicing, supplier management and procurement platform. Money, he continued, is the “lifeblood” for any business, while data is part of the foundation of lenders like Biz2Credit — their pairing is certainly a natural fit.
But, as Arora and Tradeshift SVP of Financial Services Maxim Rokhline explained to PYMNTS, the unity of digital financial data and access to capital does more than provide small businesses with money — although, they said, that is a major benefit.
“Large corporates are trying to extend their payables as far as they can,” explained Rokhline. “They try to pay late, and that causes problems for the suppliers. There is much less of a need [for financing] for large corporates. Small suppliers are the ones that really have to survive.”
Arora added that, oftentimes, suppliers will have to wait weeks, sometimes months, even after an invoice is accepted and approved on the other end, to finally get paid. By providing suppliers on the Tradeshift platform to access financing based on their unpaid invoices, that working capital stress can be lessened, the companies said.
The influx of alternative lending options has created new avenues for small companies to get financed, but the cash flow problem persists. According to Rokhline, there is a significant knowledge gap among SMEs when it comes to their cash flow and how to optimize it.
“The state of knowledge about the options, or even the cost of capital, for SMEs is actually quite negligent,” he said. Companies need to be aware of their options when it comes to financing. But unfortunately, Rokhline added, for the smallest of companies, those options are often limited.
“Supply chain financing, dynamic discounting, receivables financing — they’re primarily provided to larger suppliers,” he said. “The suppliers that are benefitting from those solutions are on top.” Arora noted the shift of banks away from small business lending that has similarly led to a struggle for the smallest of companies to get financed.
Not to mention, much of the financing that could be offered to small businesses is accessible only via in-person or over-the-phone discussions with bank and financial services representatives. According to Arora, most small business owners use time on weekends or after-business hours to research their financing options.
The way to fill that financing need, the companies said, is through wielding the power of online data. For Biz2Credit, having access to the type of financial data provided by Tradeshift is a valuable way to finance a company and can enable Biz2Credit to view businesses on a case-by-case basis to provide what Arora described as “contextual” financing.
For lenders, having access to this type of information can lessen risk and make for smarter underwriting.
“What’s very interesting is that invoicing is like real-time data,” Arora explained. And that’s great news for lenders. “We know the value of that piece of data,” the CEO said. By working with Tradeshift, he continued, the partnership could become a situation “that could add data points and lead to the development of better products and a better experience for customers,” like tailor-made solutions.
But this access to financial data is also a way to provide valuable insight for the supplier’s own company. That “real-time” information, as Arora described, gives businesses new clarity on the state of their companies — and what those businesses need.
“It helps them find out what stage they are at in their business and whether they are seeing an expansion of capital or are short of working capital,” he said.
The migration to the cloud of data found on traditionally paper-based documents like invoices empowers lenders to have the information they need to lend to the smallest of companies that cannot find financing otherwise. And that data gives small companies the power to understand their own financial positions. According to Arora and Rokhline, it’s a win for all sides, as small suppliers can access funds to stay afloat while they wait to get paid, while financial service providers and FinTechs like Biz2Credit and Tradeshift can gain insight into the gaps in SME services.
“It’s not just about getting credit,” Arora said. “It’s also a question of having access to that level of data analytics typically not available to the SME customer that they need to get better in what they’re doing, into their cash flow problems.”