For small businesses, right now the only certainty is uncertainty.
Small and medium-sized businesses (SMBs) — like their larger brethren — must grapple with rising interest rates and with the growing debt burden that is weighing on end consumers.
But beyond those challenges lies the continual push/pull between buyers and suppliers, as the former wants to hold to cash as long as possible, and the latter want to get paid quickly.
The end result is that cash flow is less than transparent, often lumpy, which in turn can lead to operational uncertainties.
“We’re seeing the tension,” he said, “of who’s maintaining margin and who’s getting squeezed.”
Working capital, of course, is essential to any firm, but especially so for smaller enterprises — the sole proprietors and small shops that line Main Street — that are being shut out of traditional avenues of capital access.
That includes the banks, of course, which are pulling back on underwriting. It’s going to become harder than any time in recent memory to operate a small business, he predicted.
But at their core, he said, small businesses and their owners are a resourceful bunch.
“They’re scrappy,” he said, “and there’s a reason why small business, in the U.S., is more than 50% of GDP.”
They’ll need a bit of help navigating the headwinds in place now and which will be in place for the foreseeable future.
The best way to resolve the tension, as noted above, is to use embedded finance to unlock the cash flow that is tied up in every relationship.
Unified commerce — where platforms connect all stakeholders, their back-end and front-end processes — aided by embedded payments, can make real-time cash flow management a reality, he said.
Priore noted that the construction industry offers a microcosm of just how important efficient cash flow and working capital management can be.
Construction, as a sector, is actually a complex ecosystem that involves the interplay between consumers, large contractors and smaller players — a wide range of subcontractors.
Banks are in the mix, too, and funding cascades (in waterfall effect) unevenly to the stakeholders as certain milestones are met (or, if there’s a holdup, cash is bottlenecked).
But there’s a digital shift swelling in this vertical.
“Being able to move money digitally,” he told Webster, “will have a meaningful impact on the construction software space.”
Embedded finance offers a way to help smooth out the friction, said Priore, between buyers and suppliers. He noted, with a nod toward Priority Technology’s own client base, “there are a lot of upstream software providers to construction management firms that are focusing on bringing embedded payments into their operating systems.”
Simply put, project managers are seeking to use modern payments to get money disbursed to their subcontractors, improving cash accelerating across the ecosystem.
Cash may have been king, he said — but now, “currency is king.”
That’s an evolutionary step, he said, and over the next three years embedded finance will become table stakes in construction management. The evolution, he said, will move from the construction management firms down to the smaller entities — the HVAC subcontractors, for example — that have boosted their adoption of technology to speed payment resolutions.
The positive ripple effect of having more cash come into the coffers, more quickly, is seen up and down supply chains. Companies with more cash on hand can order more inventory, which benefits suppliers in a virtuous cycle.
The stage is set for a more widespread adoption of embedded finance, he said, particularly across various trades. These firms are getting more used to uploading invoices, to using digital signatures to speed up funds. Hearkening back to the construction example, he said, “you keep those folks working and on site – because they are getting paid quickly.”
Embedded finance — and the platforms such as Priority that enable that functionality — can improve software suppliers’ and their end customers’ margins. Companies are not paying for the money they borrowed to keep operations humming, to get suppliers or pay wages. The platform model, he said, is critical in bringing buyers and suppliers together to create the network effect that helps digital payments to scale.
That network effect, he said, will be seen in other sectors, including health care, where paper invoices and cash flow delays plague the industry.
Priore noted that healthcare has a staggering number of payers and recipients, with the government a key player too — and providers often have to send out as many as seven invoices before they get paid. That’s a seven-month lag, and in the meantime, the provider has to run their operations, buy supplies, pay rent and pay staff. The practices may have several vendors they have to work with, and platforms can stitch the disparate elements into a single thread of unified commerce.
No matter the business focus, he said, the value created by the network effect benefits all enterprises. For the software providers, the convergence of payments and banking is an opportunity worth tens of trillions of dollars. Priority’s own growth rates, where the top line has been growing more than 30% annually, is a testament to the fact that the providers recognize the benefit of embedding payments into their solutions but who need to move beyond their own legacy systems to get there.
“I don’t expect our growth rate to abate,” he said.
Priore said SMBs would pay for cash flow acceleration. The supplier who accepts a 1% discount to get paid 30 days faster now has the cash to negotiate lower rates from its own suppliers.
“You get a discount on your downstream,” he said.
Over the longer term, unlocking the valuable cash flow assets running through an ecosystem even improves the fortunes of underbanked and underserved populations. A restaurant with modern payment solutions on hand can “push” tips and other payments to waitstaff and save them a trip to a payday lender.
“Modernizing the commerce experience — whether it’s SMBs, whether it’s enterprises or customers … it’s going to happen at an accelerating pace,” he told Webster.