How Corporations Can Do Good — And Do Well — By Financing Supplier Invoices

It’s no hyperbole to describe cash flow as the lifeblood of a business. Even when small businesses are able to churn a profit, major pain points, like receiving delayed payments from large corporate customers, continue to throw a wrench in company cash flows, threatening the existence of what would otherwise be a viable operation.

The pandemic has only exacerbated this challenge, particularly for minority-owned businesses in the U.S., according to Supplier Success Founder and CEO Louis Green, who recently spoke with PYMNTS about the importance of working capital for small- to medium-sized businesses (SMBs).

During the pandemic and the rise of social justice movements over the last year, large corporations and financial institutions (FIs) have reacted in an effort to promote the success of minority-owned businesses, be it through education programs or placing money in minority-run banks, for example.

“What none of those things do is address the biggest problem that viable businesses have, which is working capital needs,” said Green. “That’s the biggest indicator of success and longevity: working capital.”

An Opportunity With Facebook

B2B FinTech has ushered in a string of potential remedies for small businesses’ working capital challenges, each with its pros and cons. These solutions are focused on alleviating the cash flow pressure that frequently arises as larger corporations decide to delay payments, stretch payment terms and use their small suppliers as their own kind of working capital tool.

These pressures have intensified amid the pandemic, said Green, especially for Black- and Hispanic-owned businesses. While minority-owned businesses are less likely to have the working capital on hand they need to survive such financial pressures, they’re also less able to access financing from banks, recent research has shown.

While Green has been in the supply chain financing arena for years, he has recently (and quietly) spearheaded a new initiative with Facebook to launch the Facebook Receivables Financing Program. While Green noted that Facebook itself is a quick payer when it comes to settling vendor invoices, the program will enable Facebook to connect its supplier base with a platform to sell outstanding invoices from their other corporate customers. Facebook will purchase those invoices at a fixed rate of 0.5 percent, while Supplier Success facilitates the disbursement of those funds.

The idea, explained Green, is to take advantage of the opportunity that large corporations have — a healthy balance sheet — and use that to support smaller businesses.

“There are companies that have the kind of balance sheet that can make a huge difference, that can change lives and the trajectories of companies and the communities they’re in,” he said.

Do Good, Do Well

The value proposition for the corporate purchaser of the invoice isn’t simply the satisfaction of helping a business. Rather, he explained, they can open an entirely new revenue stream and bolster the overall strength of their own supply chains.

“You can do good and do well,” Green said of the opportunity, noting that the interest rates that companies currently earn on their cash stockpiles can be matched through the financing program.

The value proposition goes further for the small supplier, too. While there is the benefit of having the certainty of payment as well as faster access to working capital, smaller suppliers also stand to gain the opportunity to be more competitive with their own businesses.

“A lot of small businesses don’t make use of different payment assets and opportunities,” said Green, noting that having an invoice financing program in place allows smaller businesses to not only accept a new customer’s payment terms, but to also offer to extend those payment terms to bring a competitive edge to securing new clients. “We are working with some of these diverse companies to leverage this product in a way to have payment certainty, but also use it to gain business.”

Driving Up Awareness

The initiative with Facebook, which launched in December, has largely flown under the radar. Indeed, Green said that as Supplier Success approaches potential vendors one-on-one with this offering, some have thought it to be a scam.

It’s a barrier that can be particularly difficult to overcome among minority-owned businesses. In addition to often lacking access to financing, there also tends to be distrust of banks within minority communities, Green said, pointing to the first Paycheck Protection Program (PPP) that reinforced that sentiment, as only 12 percent of Black- and Hispanic-owned businesses that had applied for PPP loans were approved for the full amount.

With payment terms continuing to lengthen, the demand remains high for financial relief. Yet there will need to be an effort focused on outreach and education in order to connect the most suppliers as possible to initiatives that can help. Working with a company with such immense market presence as Facebook is a good start, while Green said he hopes to expand this business model with other large corporations that may be interested in supporting their small suppliers.

Key to filling the need is understanding the market — and while longer payment terms continue to weigh heavily on company financials, Green said he is optimistic about larger corporations’ interest in tackling this issue.

“We’re in for what I hope is a new dynamic in the relationship between smaller suppliers and major corporations,” he noted. “It shouldn’t be about stretching the terms with a small company with $300,000 in annual revenue to make a couple of extra bucks. People are rethinking that now, and there are ways for large corporations to manage working capital without doing it on the backs of smaller companies in a way that works for all.”