Call it the $3.1 trillion problem — or the $3.1 trillion gridlock.
As reported by PYMNTS just last month, in collaboration with Fundbox via The Trade Credit Dilemma Report, as much as $3.1 trillion net is owed in accounts receivable for U.S. firms across any given day. It’s inefficient at best, a growth killer at worst.
In one pact aimed at tapping into those trillions, Fundbox said on Tuesday morning (June 25) that it has been selected by B2B eCommerce software provider OroCommerce to provide the latter’s corporate customers with a checkout solution for credit decisions and access to trade financing. The companies are betting that in trade credit, as in so many other areas of business, tech-driven platforms can help address the inefficiencies, and grease the wheels, of commerce.
The firms said in a release that the B2B buyers can complete an online application, and business data is provided through credit scores or bank accounts. For those approved buyers, Fundbox can provide access of up to $100,000 in a revolving line of credit.
In an interview with PYMNTS, Jason Smith, vice president of business development and partnerships at Fundbox, said the $3.1 trillion locked up in outstanding invoices reflects the less-than-optimal workings of a model that has been around for several decades. Money tied up in the cash flow cycle is money not working in the economy at large — it’s not helping businesses grow, expand operations or tap new customers.
The ripple effect is far-reaching, said Smith. Firms that are not growing optimally are not hiring new workers or creating innovative products and services. The impact is disproportionately felt by small and mid-sized businesses (SMBs).
However, a shift is underway, he noted, as B2B processes are being shaken up by the experiences seen in the B2C arena, where today’s business owners are skewing younger, and driving, as he said, “significant dollars through the economy.” It’s well-known, too, that SMBs are large drivers of the economy.
Smith said these consumers/entrepreneurs do not necessarily look at traditional banks as the only conduits to accessing credit. They are increasingly more knowledgeable about — and more receptive to — alternative forms of lending, payments and banking, as headlines spotlight everything from Apple Pay to PayPal to Facebook’s newly announced Libra.
Fixing What’s Broken
As it stands now, said the executive, the trade credit process is “not very automated. It's time-consuming, and for some of these SMB and mid-market companies that we talk to — well, they don't have a lot of time. The reality is people don't wake up in the morning and say, ‘You know what? I need trade credit. I need some credit today.’ No, they actually need it at the point of need. Maybe they need new inventory, or they've got a big marketing program.”
Fundbox has estimated that the average business has 24 percent of its monthly revenue tied up in outstanding invoices. “Imagine what these businesses could do if they had 24 [percent] or 25 percent of cash injected back into their business,” Smith said.
Against that backdrop, he told PYMNTS, waiting for days or weeks to access credit can be a roadblock to growth. He also mentioned that it “can be really expensive” to access credit, where SMBs may have to pay thousands of dollars to lenders as they apply.
In B2B financing, whether the credit extended is $600 or $6,000, Smith said “the experience needs to [be uniform],” and marked by flexibility and speed. The application and credit-decision process is driven by machine learning, is faster than traditional credit assessment processes and default net terms are 60 days. For suppliers, this means being able to sell at scale. For buyers, it means having products and inventory on hand without cash flow hiccups.
In terms of mechanics, he said Fundbox has built its offerings upon machine learning and data integration, tied to open APIs. The firm collects data from more than 100 sources, then builds proprietary “data graphs” on the SMBs, which aids in the credit-decision process.
The two-sided model, Smith continued, lets buyers gain access to capital, and brings buyers and suppliers together to transact in one place. Enabling in-workflow transactions at the point of need provides bilateral benefits — for the buyer, more flexible terms, and for the seller, immediate payments based on approved buyer application processes.
“If there’s a baseball analogy, I think we're in the early innings,” he told PYMNTS of B2B credit done through the two-sided platform model. “Now, we just need to scale it, and create these experiences where businesses can get access to capital when they need it, rather than through a process that slows them down. And it all comes back to speed, accuracy and transparency.”