Allow us to be blunt: The B2B finance and invoice settlement system is broken.
Well, that’s not entirely true – things tend to work pretty well for the largest firms out there, as the largest buyers can basically set their own terms and essentially pay when they want. But for pretty much everyone else, it’s broken. And as Eyal Shinar, CEO at Fundbox, noted to Karen Webster in a new PYMNTS discussion, that’s an approximately $3.1 trillion problem, according to PYMNTS research – and, of course, presents a big opportunity.
That $3.1 trillion “Net Terms Economy” is what’s owed in accounts receivable for U.S. firms across any given day. Having so much money 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 that’s not working in the economy at large – it’s not helping businesses grow, expand operations or tap new customers. Indeed, the company has estimated that the average business has 24 percent of its monthly revenue tied up in outstanding invoices.
“The only case when suppliers have any power is when they are large,” Shinar said during that PYMNTS discussion. There is also the ripple effect: One late or missed payment impacts cash flow, and any disruption to cash flow causes its own problems.
Trends and Factors
But as Shinar told it, automation and other factors can help level the playing field, putting some B2B payments power in the hands of those smaller suppliers without alienating them from the larger companies that are also part of the wider ecosystem. The company’s automated trade financing platform makes it easier for small suppliers to provide terms to their buyers, or for small buyers to gain access to longer payment terms, without having to clear the normally rigid hurdle set.
As the late, great Tom Petty once sang, the waiting is the hardest part. That certainly applies to B2B financing and invoicing. That’s why Fundbox, in its innovative contribution to this vital space, has developed the first B2B payments and credit network that employs machine learning, data integration and open APIs to make quick decisions – less than three minutes, according to Shinar – on whether to offer its services to those small- and medium-sized companies applying for credit. The firm collects data from more than 100 sources, then builds proprietary “data graphs” on the SMBs, which aids in the credit decision process.
Businesses that use Fundbox B2B payments and credit network can finance their purchases from a supplier, and the supplier gets paid right away while the buyer holds onto its money for a while longer. Fundbox assumes the risk of underwriting the buyer, which also gets access to credit that can be put to better use than just covering basic bills.
“We help the seller get paid now,” is how he put it to Webster, adding that the situation for smaller companies operating in this space is likely more restrictive than even 15 years ago. But since then, Shinar said, general moves toward digitalization, along with the rise of relatively inexpensive cloud computing and advances in machine learning and artificial intelligence, are providing new opportunities to bring more efficiency and even fairness to this area of payments and commerce.
“Everything is becoming a bit more consumer-like and streamlined,” he said.
The appeal of this area of B2B payments is reflected in the fact that Fundbox just raised $176 million in growth equity funding for its Series C round and has secured a $150 million credit facility. According to Shinar, the funding level was not exactly expected: “We raised more than we planned,” he noted.
But progress is still ongoing, as Shinar’s plans for the fresh capital seem to indicate. The money, in general, will go toward bolstering the company’s B2B capabilities and will focus on one specific and very large market, at least initially. “We are trying to focus on the U.S. for now,” he told Webster. “It’s a very big player. We need to figure it out in the U.S. before we expand elsewhere.”
Indeed, as Webster pointed out, it’s not often easy for some, usually smaller businesses to get credit even if they appear creditworthy – the system is geared toward the needs of those larger firms and larger buyers. But digital technology and the ensuing innovations are likely to change those facts over time.