B2B payments are mired in delays, in errors, in an imbalance in funds flow and credit terms. Simply put, buyers stretch out payments and suppliers play the waiting game – at least as well as it can be played with checks and cards.
The result is a cash flow crunch. Access to financing (trade finance, that is), especially online, can level the playing field a bit.
Fundbox said on Wednesday (May 1) that it had been selected by application service provider Brandwise to help provide net terms for the latter’s suppliers, buying agents and retailers through Fundbox’s B2B capital platform.
In terms of the mechanics of the integration, Fundbox’s offering is being embedded in both Brandwise’s online and mobile platforms, which helps suppliers and sales agencies sell to retailers.
The companies said suppliers can get paid as soon as an order is “captured” through the Brandwise system, and approved retailers get “net 60 terms” on their purchases, within credit limits. Fundbox enables sellers to authorize funds within the aforementioned credit limit to ensure funds are “earmarked” and cannot be used until the sale is captured.
One advantage lies in the fact that the retail ecosystem, as brought together through the partnership, may become less reliant on credit cards.
With Fundbox’s model, the companies applying for credit complete an application form and connect to a number of business data sources, with a streamlined credit decisioning process underpinned by machine learning. The firm, which says it has facilitated over $1 billion in credit being extended to small businesses, lets borrowing enterprises access up to $100,000 through revolving business lines of credit.
In an interview with Karen Webster, the executives at the helms of both Fundbox and Brandwise weighed in on the ways machine learning and extension of net terms – along with a jointly powered model that lets suppliers get paid with speed while enabling buyers to finance their purchases – can streamline B2B transactions and spur SMB growth.
According to Fundbox CBO Sebastian Rymarz, the gift and home verticals are marked by transactions that find their genesis at trade shows. Retailers may go in hopes of discovering new products, and by working with agencies and showrooms, may place an order for, say, 10,000 pairs of sunglasses. With the integration of Fundbox, that order, placed through the Brandwise application, can now be done on terms. The sellers and vendors can get paid today, Rymarz said, while buyers can pay over 60 days or can choose to finance beyond that 60-day window. Fundbox will allow them to “pay over time and increase their purchasing power” across, for example, 75 days.
As Rymarz told Webster, “We are going to be the exclusive provider of trade credit on the Brandwise platform” – which, as Brandwise CEO Todd Litzman told Webster in a separate conversation, spans 250,000 partners (comprised of retailers, brands and agencies), with an annualized sales tally of around $2.5 billion.
The two executives related how traditional methods of B2B transactions (we all know the vagaries of paper-based communications and checks) may rely on credit, but credit cards are less than ideal.
After all, the suppliers who front merchandise amid the promise of credit card payments may not get paid on the terms struck upon initial agreement. Or, there may be a return of merchandise, or cards may get declined … in short, just because the payments rails are faster does not mean sellers get paid in a timely manner.
And, added Rymarz, issuers that extend credit to small businesses generally base their credit decisioning on the SMB owner’s personal credit “plus or minus some business characteristics” – which means the credit on offer may not meet the firm’s need. In essence: It’s nice to be able to tap a $15,000 line, but that may fall short of the $50,000 line that might be better leveraged to help a company scale – and it may hardly be enough to cover payroll or inventory.
Litzman noted that while a significant volume of payments across its offerings has been tied to credit cards, wholesale remains a “pay on pay industry and a ship on ready industry.” By way of illustration, he offered the scenario where a buyer places an order with a rep (whether an individual sales rep or agency), that rep places an order with the supplier and the supplier sends an invoice or charges a card when the goods are shipped – not an easy balancing act of waiting for payment when, in some cases, as much as 30 percent of orders can be canceled.
“What drove us to Fundbox is the competitive disruption that is going on, particularly in the gift side of the industry,” said Litzman, who estimated that the average order size in the verticals served by his firm stands at about $810. “There is the supplier of the brand that builds the product or supplies the product. There is the retailer that purchases it. Then there are the agencies, which are the middlemen.”
The disruption, as he described it, lies with wholesale digital marketplaces, which offer better rates and net terms, as they do not have the same infrastructure and operating costs seen across traditional marketplace models.
By integrating Fundbox into its offerings, said Litzman, all three stakeholders can pay and be paid in a timely manner, and are better able to compete with online marketplaces (while, we note, killing reliance on costlier payments rails such as credit cards and, of course, the check).
Concluded Rymarz: “The B2B space is waking up to the internet and technology.”