Embedded Invoice Financing Bridges Cash Flow Gap for EU Freelancers, SMBs

Delayed invoice payments are the bane of businesses everywhere, but for freelancers and small businesses, the sting from these late payments can be especially crippling to their cash flow.

The November edition of PYMNTS’ “B2B and Digital Payments Tracker” found that cash flow challenges impact roughly one in four small- to medium-sized businesses (SMBs) in the United Kingdom, and 94% of British companies surveyed said that they had experienced at least one month of negative cash flow in 2021.

It’s a problem that European regulators are looking to clamp down on, with the U.K. government announcing last year the launch of a “prompt payment and cash flow review” to evaluate the progress made in combating late business payments.

The European Commission, on the other hand, has included the revision of the late payments directive in its 2023 work program in an attempt to bring relief to SMBs, which are a mainstay of economies across the region.

But while waiting on these regulatory efforts to materialize, Clément Carrier, CEO at French FinTech firm Aria, said freelancers and SMBs still have to contend with long payment terms, ranging from 30 days to 60 days, which also puts a strain on healthy cash flow management.

Traditional banks, which are used to financing large companies, have not been particularly helpful in this area, creating a gap in the invoice financing space for small transactions as low as 20,000 euros or 25,000 euros (about $22,000 or $28,000).

That’s where Aria comes into play, Carrier told PYMNTS, by embedding its lending solution into platforms like B2B marketplaces, vertical Software-as-a-Service (SaaS) companies and enterprise resource planning (ERP) systems — which he referred to as partner clients — as part of a goal to make instant the new B2B payment standard.

“When it comes to these granular transactions that are made through digital channels into B2B marketplaces, verticals SaaS or ERPs, it’s very tough for the classic actors in the finance industry to target them,” Carrier said in an interview, adding that freelancer marketplaces, on which a significant portion of Aria’s volume is generated, have been a key target since day one.

He added that although the automation required to effectively handle small transactions is tough to put in place for incumbents, the FinTech firm has cracked the code, helping sellers get direct access to 100% of the value of their invoices within 24 hours. In turn, buyers can stick to their usual payment terms, at the end of which Aria is repaid.

Overall, the Paris-based company has financed more than 100 million euros (about $110 million) worth of invoices in the past three years, Carrier noted, with over 12,000 businesses benefiting from its services so far.

It’s a mission he said the firm will continue pursuing with the 50 million euros (about $55 million) it recently secured, especially as it positions itself to meet increasing demand brought on by the current macroeconomic environment.

AI’s Impact on B2B Payments TBD

When it comes to new technologies like artificial intelligence (AI), Carrier said he is of the view that AI in B2B payments isn’t ready to take off, arguing that the technology will not revolutionize the lending and credit scoring landscape — as least not yet.

He pointed to Aria’s in-house credit risk management system, which relies on public and private data and historical data from partners, as one that has been meeting expectations so far with some help from new technologies.

“At some point [in] our data gathering and processing, we’ll probably run a couple of machine learning models on top of the information we have, but we do not intend to do a complete overhaul of our credit risk analysis using AI,” he said.

Having relied on debt facilities to grow the business since launch, he noted that moving forward, Aria plans to work more with mainstream lenders to refinance a new special purpose vehicle (SPV) that it will be setting up in the future.

“We have not built Aria to be in competition with banks,” Carrier said. “We want to work with them and ultimately, we see banks as our partners.”

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