Speeding payments along a supply chain has the benefit of helping the smallest firms – the most vulnerable links – thrive via steadier cash flow and easier day-to-day planning.
To that end, Tipalti said earlier this month it has launched a supplier financing service, called NetNow, aimed squarely at helping smaller firms remain competitive. The service has been added to the company’s accounts payable offering, according to a release last week.
In an interview with PYMNTS, Todd McGuire, general manager of supplier success at Tipalti, said the solution addresses a growing need for firms, from small to mid-sized businesses all the way to middle-market companies, to tap into more sources of funding.
The funding shortfall is significant, he said, in terms of unmet need for capital measured in dollars – to the tune of $1.5 trillion. He added that smaller firms could also benefit greatly from speed and flexibility in accessing that capital.
“If it takes too long or it's too long of a commitment to get capital in a very short-term fashion, that bridges a gap for them,” McGuire said.
By way of example, he noted that some of Tipalti’s customers are marketplace platforms, existing as two-sided networks where the supply chain (vendors contributing content, for example) are also revenue drivers. Many of the smaller firms contributing content or artwork – if able to receive payments 40 days earlier (while accepting a small discount on net amounts paid out) than might be seen with, say, 45-day terms – could take that accelerated funding and re-invest it into their operations to fund growth.
“But they don't have the capacity – they are either very young in their life as a company or they don't have the time because they're fairly small – to go and get a line of credit with a bank,” McGuire told PYMNTS of those suppliers. “Or, alternatively, they don't want to take every receivable they have and factor all of them for the next six months. They may just not be big enough for [lenders] to really have paid attention to them, because they only need short-term capital.”
In addition, cash flow and capital needs can be volatile as businesses expand, especially on the supplier side, and executives are unable to forecast that far into the future. When sudden cash flow crunches or expansion opportunities do arise, there exist onerous hurdles to clear in terms of the reams of information demanded on credit applications.
Small business owners may have to divert time away from their businesses to grapple with paperwork.
For the lenders, McGuire added, it’s hard to underwrite borrowers comfortably without a wealth of data or a pre-existing relationship in place. With NetNow, he said, Tipalti already has existing relationships with payers and payees and “a huge source of data” at the ready, enabling it to provide accounts payable and remittance services for clients.
In accelerating payments between payors and payees along a given supply chain, he said, “we have a tremendous amount of knowledge about the payment history between the two companies.” That knowledge draws on alternative sources of data that capture creditworthiness beyond the confines of data traditionally used for FICO.
In terms of process, and how NetNow works, McGuire said that in the case of a digital platform, a website blogger may be selling affiliate merchandise on their site and offering order fulfillment.
On the other side of the equation, the large digital platform payor may take quite a long time to pay that affiliate. Rather than waiting on the 30-day payment terms to be fulfilled, the affiliate can opt to be paid on an accelerated basis through the Tipalti offering, at a discount; in turn, the quicker payout might enable them to hire a photographer to help them spruce up their own site.
According to McGuire, as payors invite payees to participate in NetNow, suppliers can choose to be paid early (or not), offering the flexibility to tap financing options when needed.
Payment processing can begin on the same day (although payments, done through wire, check, U.S. ACH or global ACH do not settle on the same exact day).
He added that the accelerated payment is borne by third-party providers, while the payor pays the invoice on the original contracted due date (where Tipalti takes its fees), so there is no change in process on the payor side, either. Suppliers are also unable to submit invoices unless they do so through the Tipalti portal, which mandates that a wealth of information is submitted to ensure tax and regulatory compliance.
There are other options for accelerated payments, McGuire said, with different risk models inherent, including NetNow - payor-approved options that allow for payors to underwrite credit themselves – thus taking on the risk in a way that closely mimics dynamic discounting. In other scenarios, payors may opt to use third-party capital accessed from their own sources, using Tipalti through a white-labeled service.
“What ends up happening for the flow of funds is that we facilitate it in exactly the same way that we would a normal payment,” McGuire told PYMNTS.