Historically, working capital options for small and medium-sized businesses (SMBs) have been somewhat limited, and the current interest rate environment has only exacerbated this limitation.
As a result, businesses have been compelled to explore alternative financing avenues, which tend to be more expensive for most small enterprises. According to Court Toomey, even traditional options like Small Business Administration (SBA) loans have seen an uptick in average rates from 12% to 15% for loans under $300,000 — a typical amount sought by small businesses.
“[Small businesses are] just looking to float that initial 30 to 90-day period to bridge that gap between their days payable outstanding and their day sales outstanding and a 15% rate is just not feasible,” Toomey, head of Commercial Payments and Product at Plastiq by Priority, told PYMNTS in a recent interview.
Beyond short-term credit access limitations, the lack of integrated payable solutions and accounts payables (AP) automation platforms is also a key challenge. These tools could significantly benefit both small and larger businesses, Toomey added, yet financial institutions (FIs) are not extending them to these segments.
Recognizing this gap, he said Plastiq is working to bridge the disparity by providing the same comprehensive solutions to businesses of all sizes that address the critical need for inclusive access to essential financial tools and services.
The business-to-business (B2B) company operates as a card enablement platform for categories such as commercial lease, general inventory purchases and insurance premiums which have low card acceptance, allowing card spend in those situations where direct vendor payments are not accepted. With this solution, businesses can now cover expenses such as commercial rent, general inventory buys and freight and shipping invoices.
“If a vendor doesn’t accept card, check, ACH wire, or [has limited] remittance options, Plastiq steps in as a buyer-funded platform,” Toomey explained, “allowing businesses and companies to essentially process almost anything they want on their card products as long as they’re willing to cover the processing costs of those transactions.”
Unlike the traditional model where vendors bear processing costs, Plastiq shifts the responsibility to businesses, empowering them to use their cards for a broader range of payments.
“The beauty of this is that we’re allowing them to utilize those credit products that already exist in their wallets for everything versus just those vendors or payment categories where they do have direct acceptance, which might be very limited,” he said.
According to PYMNTS Intelligence research, there is a strong correlation between companies and industries achieving high operational efficiency and the use of virtual cards — a sentiment Toomey echoed.
The B2B firm has developed an automated intake module for all virtual cards in the U.S., which reclassifies vendors who would otherwise be labeled as check, ACH, or wire in the buyer’s enterprise resource planning (ERP) as card-accepting vendors through Plastiq, all with a simple click.
In essence, the module receives virtual card notifications from the issuer or the virtual payables provider. Subsequently, invoices, whether singular or multiple, are transformed into a wire or ACH payment that Plastiq then remits to the supplier on the buyer’s behalf, with all payments remaining in the buyer’s name as the originator.
But despite these advantages, virtual card adoption has been slower than expected. The PYMNTS Intelligence study indicates that virtual cards are expected to emerge as the primary working capital solution for only about 5% of middle-market firms this year.
Toomey pointed to the lack of consistency among various banks’ offerings as a key factor hindering adoption, creating challenges for businesses trying to navigate the landscape. Internal implementation is another obstacle, particularly for companies with limited team sizes, leading to delays in the setup process, he said.
Still, he argued that the benefits far outweigh the initial costs, and committing a small effort upfront can lead to substantial long-term gains: “There are amazing efficiencies that can be captured as long as [businesses are] willing to put in just a little bit of work on the front end.”
Looking ahead, Plastiq is seizing opportunities in the cross-border payment space and has expanded its global and foreign exchange (FX) capabilities. This move, Toomey said, has enabled cross-border businesses to transact and use their USD-issued cards for vendor payments across 90 countries.
“Whether it’s manufacturing or eCommerce or retail, so many businesses are now buying directly from vendors and suppliers overseas and there is still a lot of fragmentation in the currency settlement process,” he said, adding that with Plastiq, “card-to-account is the same whether it’s here [in the U.S.] or abroad.”
The B2B firm is also expanding its embedded technology platform, Plastiq Connect, enabling third-party AP automation providers, integrated payables solution providers and banks to integrate the core functionality into their payment solutions.
According to Toomey, the ultimate goal is to make card payments an option for every transaction, while ensuring efficiency and cash optimization for businesses navigating the rapidly evolving digital age.
“Our goal is to provide clients with as much flexibility as possible and the right solutions to optimize the cash they have on hand to finance day-to-day operations, or even expand those operations in future,” he said.