How B2B payment companies can expand supply chain finance solutions

In my last post, we spoke about early pay finance being part of the overall payment processes. One of the implications was how B2B payment companies could play more actively in the early pay finance space.

If we are involved in receiving payable files, then we can certainly add early pay finance. Some companies have already implemented solutions such as:

  • Tipalti offers two types of early pay solutions to their clients (payors) via its NetNow solution. Both programs are payor-backed payments on approved invoices with the options being: self-funded programs and third-party funded. (See Spend Matters' three-part Vendor Analysis of Tipalti here.)
  • Veem Capital’s early payment offerings include both payor- and receiver-focused working capital products. Veem's Pay Later program offers payors a deferred payment option that gives them a purchasing line of credit. This is available only to U.S. businesses, but it allows them to select bills for Veem to pay now while giving the payor the flexibility to pay off the program's credit over time. (See our three-part Vendor Analysis of Veem here.)
  • B2B payment companies that support e-commerce like Square Capital and PayPal have aggressively entered the merchant cash advance market for one simple reason. When you can market directly to merchants, you have a serious competitive advantage on customer acquisition costs. Sellers are able to access business loans based on the volume of business they do through the site. These companies have built sophisticated underwriting combined with a fast application process to grow aggressively.
  • Previse has developed an AI-based instant invoice payment solution called InstantPay, which it believes has cracked the pre-approval invoice finance nut. The London-based vendor markets to large enterprises and their supplier relationships. Previse’s solution aims at the dilution problem in a way few SCF platforms have matched. (See our recent Vendor Analysis of Previse’s solution here.)
  • AvidXchange, which makes the bulk of their money with AvidPay, the 10th largest v-card issuer in the U.S. across all banks, has developed an invoice accelerator beta product where they advance funds and take buyer credit risk.

While there is growing interest on the part of B2B payment providers to develop early pay capabilities, the credit and banking world has changed substantially in the surreal reality of the coronavirus crisis. The low-risk reputation of “purchasing” invoices or receivables, given the relationship with the obligor (payor or client for B2B payment company), has changed dramatically with coming credit downgrades, deterioration in balance sheets and income statements, seller and buyer bankruptcies, and many other aspects.

As B2B companies look to develop or enhance offerings, here are a few key questions to keep in mind:

  • What early pay techniques exist for your business model (deferred buyer finance, approved invoice, non-confirmed invoice, etc.)?
  • How should you approach funding? Should you secure your own credit facilities with banks, work with one funding partner, or develop more sophisticated marketplace and securitization models?
  • How should you establish a scalable early pay finance solution? One of the biggest challenges for many mid-market companies is that invoice approval processes are so slow that there is little, if any, early pay opportunities. This could force companies to move to a funder model without approval, which is a higher-risk game.
  • Are there ways to enhance underwriting, such as extracting accounting data and bank statements to do more real-time decision management?
  • Given your client relationship is on the payor side, how do you “win” business with beneficiaries (or payees or borrowers) who are not your customers?

B2B payment vendors looking to understand how to add or expand working capital product functionality that complements their offering should seek to understand this space in a much deeper way. Assessing the realistic opportunity, developing an offering, finding the right partners and funders and positioning that offering in a crowded market is not easy.

Do your homework!

David Gustin runs Global Business Intelligence, a research and advisory practice focused on the intersection of payments, trade finance, trade credit and working capital. He can be reached at dgustin (at) globalbanking.com.

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