Preparing B2B Services Firms For The Future Of Embedded Finance

The U.S. may be in the midst of a Great Resignation, but all across the globe, professionals are seeking more efficient, digital-first ways of switching employers and getting matched with the right company.

Staffing firms and recruiters are, like many other industries, embracing opportunities to modernize. Yet the traditional cash flow patterns of this industry are not always conducive to growth, let alone investments in innovative technologies.

Shan Han, co-founder and CEO of Hong Kong- and Singapore-based Zetl, told PYMNTS that Asia’s services economy is growing rapidly, and it’s likely to surpass traditional manufacturing in terms of its contribution to overall gross domestic product (GDP). Amid this expansion, staffing agencies are struggling to keep pace.

“This growth will be driven by the next generation of businesses, which are asset-light and see most of their cost in white-collar labor,” Han said. “These companies, whether tech startups, consultancies or staffing agencies, are all currently entirely underserved by the market.”

According to Han, by tailoring financial services to the needs of a business’s unique use cases, and not merely the size of a company, FinTech can help lift the financial stability of a market driving broader economic growth.

Cash Flow Runs Thin

Like many businesses supplying services to other companies, cash flow can be a pain point thanks to delayed invoice payments.

This challenge can be particularly acute for staffing firms, however. The industry operates on a foundation of providing talent, which needs to be paid in a timely manner no matter what. Meanwhile, however, clients can take months to settle the bill.

This “mismatch,” as Han described it, between accounts payable (AP) and accounts receivable (AR) keeps industry firms from growing.

“This creates a big hurdle for growth for many such businesses, as they need to have the bank balance available before they can pitch for larger contracts,” he said. “This results in either slower growth while they wait to save up the required cash balances, often losing business to competitors in the process, or having to dilute their equity, which can be very expensive for business owners in the long run.”

The pandemic exacerbated this issue as more businesses delayed payments amid their own disruptions from migrating AP to a remote work setting. In other cases, however, Han acknowledged that “certain end clients are notorious late payers,” using payment delays as a cash management strategy.

Use Case Financing

Cash flow hiccups are common, but the reasons behind them, and the use cases for financing, differ from one company to the next. As a result, traditional bank financing is not flexible enough to tackle the particular cash flow pain points of the staffing services market.

“If you just need two-month bridge financing for payroll, why should you be locked into a three-year term loan?” Han pointed out.

Zetl, which in July raised about $700,000 in seed funding, wants to address the cash flow gaps of the recruiting sector with targeted financing products, including invoice and payroll financing. As the firm expands, it is introducing additional services tailored to the sector, including payroll technologies to manage workflows for hiring clients and an early wage access solution for talent.

Read more: Corporate Spend Management Opens B2B FinTech Floodgates

According to Han, this industry-specific tactic is the future of alternative lending and FinTech.

In the context of broader financial services innovation, Han also highlighted the opportunity for embedded financing to further ease friction on an industry-specific basis.

With open banking expanding throughout Asia, Han said the market needs know your customer (KYC) and business identity verification standardization to remove roadblocks from accelerated innovation.

“The future of business finance is going to be use-case-based, rather than product-based,” he noted. “As [a small- to medium-sized business (SMB)], when you go to a bank, you have the option to choose from limited loan products that often aren’t well suited to your actual requirements… Our view is that embedded finance that is tailored to specific use cases will be the future of business finance.”