It’s never been easier for B2B businesses to collaborate and connect. However, the ease of building a partnership network introduces a host of risks to which businesses are exposed when they don’t perform their due diligence.
The most pressing question emerges: Does a business really know who it’s dealing with? Working with the wrong partner can lead to issues around late payments, inadequate services or even non-compliance.
For middle-market companies, the need for outsourcing is pressing. Limits on resources and internal talent make outsourcing a viable alternative to developing products or fostering expertise in-house, particularly for non-core, non-strategic processes. Most companies surveyed by KPMG in a 2014 research report said their outsourcing activities would increase, while 62 percent said they would take a hybrid services model approach that incorporates outsourcing and shared services.
Middle-market firms are particularly embracing the outsourcing model, according to Mike Cassity, CEO of Flockgen, an online platform that connects B2B businesses to partners and customers. Flockgen recently announced a partnership with Paro, a community of third-party accountants, bookkeepers and CFOs who provide outsourced financial services to business clients.
Reaching outside company walls for financial solutions is a popular choice for middle-market companies, Cassity recently told PYMNTS.
“We focus on the middle market, and some of our partners cannot afford to have people on their staff on a full-time basis,” he said. “A lot of our partners have minimal, bare-bones accounting staff. But any special projects above and beyond the day-to-day routine, like M&A transactions or billing and financial models, a lot of our partners and their clients don’t have that kind of talent.”
Businesses will often need a highly specialized expert, whether in the financial services space or elsewhere, or may only need that professional for a limited amount of time — making outsourcing a more sensible option than hiring in-house.
The challenge when finding an outsourced service provider, especially when it comes to financial services, is understanding who that service provider is and whether they will provide the services a client needs. On the other hand, service providers working with a new client similarly presents risks around receiving on-time payments, maintaining Know Your Customer (KYC) compliance and more.
“Almost all companies are, nowadays, part of a complex network of [various] types of business partners — from supplier to agent to customer,” said PricewaterhouseCoopers (PwC) in a recent report on business partner relationships. “The identification of all existing business relationships often represents a major challenge for companies that aim to protect themselves against possible questionable practices by their business partners.”
Background checks and screenings of business data are key components of due diligence, PwC noted.
“We look at everything,” Cassity said of the vetting process that Flockgen uses when adding new partners in its community. “How long they’ve been in business, types of experiences they’ve had. One question we like to ask a potential partner we’re screening is, ‘Would it be okay if we speak with some of your customers?’ If we get any hesitation, we move on.”
A service provider’s own relationships with existing clients offer a reliable view of their future performance. Conversely, examining a business’ performance working with its own partners and service providers can offer insight, too — for example, looking at payment habits. Cassity noted that Flockgen keeps this factor in mind: After all, if a deal made in the Flockgen network goes south, then Flockgen itself is hurt, too. (The company negotiates referral fees and pays compensation for companies that make referrals. Flockgen also makes money when customer referrals are converted into sales.)
The payment habits of a business client can be a difficult challenge for any B2B service provider, which is why working with a third-party middle man benefits all sides involved, he continued. Companies that pay late are not likely to be referred again in the future, while service providers that are not up to par with expectations are not going to be used in the community again.
Cassity added that the use of a many-to-many community of B2B networking partners, rather than a one-to-one partnership strategy, yields benefits as each new member of the community can be vouched for by a broader network of clients and partners. If a service provider that refers its own customers to a partner in a network, and that partner underperforms, then referrals won’t flow in. Cassity noted that these providers must communicate, set the proper expectations and follow up with clients.
“It’s not just payments,” he added. “It’s about how well they communicate [and] give customers updates on progress; it’s totally transparent.”
That transparency is critical in B2B relationships. And while technology enables corporations to quickly reach and connect with a massive pool of potential clients and partners across the globe, Cassity noted that the human elements of trust and communication remain essential as more companies outsource vital processes, including finance.
“We encourage that communication,” he said. “You can build software to automate everything, but businesses cannot run only on technology. To make relationships work, to develop trust levels, there has to be an analogue element, which means you know the people and you develop a relationship with them.”