Cash flow management can be a conundrum for any business, large or small. But when SMB suppliers land a contract with a large corporate buyer, they are often forced to accept whichever payment terms and habits that customer imposes upon the buyer-supplier relationship, and unfortunately, that often means delayed and even late invoice payments for a vendor.
In the U.S., PYMNTS research estimates businesses across industry and sizes are owed $3.1 trillion on any given day as more businesses deploy a “buy now, pay later” strategy when procuring and buying from other businesses. But that accounts receivable bottleneck isn’t a liquidity problem isolated to the U.S.
Indeed, sluggish B2B payments can be felt the world over. In Europe, Germany-based Billie has stepped into the market to tackle the friction points delaying payment to smaller vendors. The firm, which announced a $33.6 million venture capital funding round earlier this month, connects small vendors to an invoice factoring solution, allowing suppliers to access capital against unpaid invoices while they wait for buyers to pay, while Billie handles the collections process from the buyer.
But according to Billie Co-Founder Aiga Senftleben, in order to break the cycle of delayed vendor payments, solution providers cannot tackle the problem from only an accounts receivable (AR) or accounts payable (AP) perspective.
“It’s really not only [a challenge for] the seller, it’s also about the buyer,” Senftleben told PYMNTS’ Karen Webster in a recent interview. “The buyer also wants to know when they’ll be receiving money from someone so that they can commit to paying [their invoices] in accordance with that.”
Addressing Buy-Side Friction
The long line of cash flow down supply chains is faced with bottlenecks and pain points at many levels, and delayed accounts receivable will inevitably have consequences that spill over into a firm’s accounts payable practices.
In addition to its factoring solution, Billie has also introduced an online point of sale (POS) financing solution for corporate buyers to access capital to finance their purchases and accelerate funds to the merchant. Addressing friction on the buyer-side is key, because in addition to buyers themselves often struggling to be paid on-time, companies are often lacking choice in how they pay their invoices: Virtual cards that land capital in a supplier’s hands more quickly without compromising on the ability for a buyer to delay payment aren’t common in Germany, explained Senftleben.
POS financing meets a buyer where they are to present the choice — not the requirement — to finance their purchase without preventing a supplier from receiving payment. As Billie expands, the company plans to add 60- and 90-day repayment options for corporate buyers on top of the current 30-day repayment plan it provides.
Senftleben noted that while the issue of delayed and late B2B payments is often discussed in the context of large corporates working with small suppliers, SMB buyers have their own cash flow challenges too, and similarly struggle to find the resources and personnel to smooth out cash flow concerns that end up negatively affecting their own vendor base.
SMBs’ Liquidity Squeeze
Of course, small vendors working with large corporates is a common scenario that demonstrates SMBs’ cash flow vulnerabilities on the supplier-side of a B2B transaction.
Among the largest challenges is the fact that SMBs lack negotiating power when dealing with a large customer. Senftleben pointed to Germany’s automotive industry as an example of an industry with big-name players and complex supply chains that rely on smaller vendors.
“Germany’s economy is famous for its mid-layer of small, traditional, family-run companies,” she said. “A lot of them are a very important part of the economy. However, they will not dictate terms when they’re speaking with a customer like Audi or Volkswagen or Mercedes.”
And when one of these large corporate clients misses their invoice payment deadline, small suppliers have few avenues of recourse. Because these client relationships are essential, an SMB probably won’t initiate collections against that firm, noted Senftleben. Adding to the challenge is the lack of manpower within small businesses’ back office to address cash flow challenges: There may only be one professional, if any, with enough time, resources and expertise to tack down late payments and analyze current cash positions to help a business plan for growth.
Further, the current landscape of factoring service providers will take the time to visit a larger company as part of its underwriting process yet will not always see a small business as profitable enough to conduct that same due diligence. Traditional financing, meanwhile, can rely on personal financial data of a small business owner to underwrite any loan products or credit lines. Senftleben explained that this often leads to “tiny” financing offerings too small to make a meaningful impact on corporate cash flow.
In Germany, she said, FinTech has made significant strides in payments innovation. Yet the market has typically focused on the consumer payer, and according to Senftleben, for all of the innovation the payments sector has seen, technology continues to focus on the individual — and rarely considers the small business payer. That’s a gap in the market Billie is working to fill.
“Small businesses should worry about their businesses, and not worry about their finances,” she said.