SMBs Turn To Barter To Ease Uncollected Receivables Burden

Today’s business climate is rough. At the height of the pandemic, shutdowns led to many firms closing their doors, and even with restrictions easing, many companies will never recover.

The cash flow pressures companies, particularly small- to medium-sized businesses (SMBs), are withstanding today are coming from all sides. In addition to forced closures, supply chain disruptions are causing payment bottlenecks, and many invoices are going unpaid.

“We are seeing organizations shutting down, hemorrhaging cash,” said Jason James, co-founder of Trade Nicely, in an interview with PYMNTS. “It’s been a really rough adjustment for a lot of them.”

When an organization is bearing an ever-increasing burden of outstanding accounts receivables, there are multiple sources of capital to which it can turn. Yet they’re not all created equal, James explained, and many sources lack a more humane approach to easing the burden of debt.

The Predatory Lending Trap

When it comes to accounts receivable (AR) financing, factoring companies will only look at performing assets. When a customer simply refuses to pay, turns insolvent or simply cannot settle a debt, many firms simply write off the debt as uncollectible.

It’s adding even more cash flow pressure to an already volatile environment.

Another alternative, noted James, is to rely on predatory lenders to access quick cash to cover the costs of operating. This can come with a whole host of other problems, although some regulators have taken steps to broaden the scope of borrower protections to include SMBs.

“Overall, it’s positive that business owners now have a voice, although we’ll see predatory lenders making adjustments over time and will definitely find a way to maneuver around it,” said James.

As a result, he said, businesses will increasingly turn to FinTechs that can offer more creative, flexible solutions to their cash flow and debt challenges.

As James pointed out, Trade Nicely operates on a bartering system, allowing businesses to trade both performing and nonperforming AR, depreciating assets and other debts to access capital, or participate in the firm’s debt forgiveness program (the company has established a goal to facilitate debt forgiveness of $50 billion by 2025).

An Alternative To Collections Agencies

With financial pains growing stronger, ignoring or writing off debts is no longer an option for many firms. And rather than turn to an expensive predatory lender, businesses will instead migrate the task of trying to collect on those debts to a collection agency.

This, too, comes with some negative consequences, according to James.

“We noticed there is not really a good alternative to working with debt brokers and directly with collection agencies,” he said. “There is a huge lack of transparency, there are lawsuits that result from that, there are data breaches.”

Often, a client’s portfolio is repackaged and resold to a second or third collection agency without the client’s knowledge, creating even less transparency and greater risk of data leaks and breaches.

A client that is placed into collection rarely has a positive experience, added James. In today’s social media age, that client could post negative reviews of a company online, which not only creates bad PR for a business, but effectively ends the business-customer relationship on a painfully negative note.

As a result of the negative experiences of collection agencies and predatory lenders, James noted that there was a gap in the market to help businesses both access capital they’re owed and preserve those relationships.

It’s what led to the formation of Trade Nicely itself, which combines its offering with the social element of trading positive PR and customer acquisition services. The trade-off means lenders and businesses can turn outstanding debts into the potential for growth.

With economic uncertainty and volatility expected to continue, in the world of B2B commerce, late payments and cash flow constraints will be the new normal for many companies.

“Customers want to pay later, and it does dampen the B2B relationship,” said James. “You don’t want to lose your clients, but you still want to get paid. It’s a juggling act.”

This could be an opportune moment in the history of FinTech and alternative lenders, however. An increasing number of options available, combined with government efforts to protect business borrowers, could be a vital combination to preserve the vitality of the SMB community — if those SMBs can find the right fit.

“Having a trusted relationship with a clean reputation and integrity is essential,” said James.