B2B cash flow management is becoming increasingly important as businesses contend with supply chain disruptions, rising costs, and greater economic uncertainty. Delayed payments can create financial pressure throughout the supply chain, particularly for small and midsize businesses that may have less flexibility when customers extend payment terms.
Digital payment and working capital solutions are emerging to help businesses address these challenges. By combining payment automation with financing options such as reverse factoring and supply chain finance, fintech providers can help suppliers receive payment sooner while giving buyers greater flexibility over when they settle their obligations.
Cash flow is the lifeblood of any business, and B2B payments are a critical part of cash flow management. When payments are delayed, it can have a ripple effect on cash flow, leading to late payments to suppliers, delays in payroll, and other financial problems.
This article was dropped in Financial Review and sponsored by a fintech in the working capital/payments automation space. Given the post-pandemic (and somewhat ongoing COVID) scenarios being faced across the globe with trailing supply chain vapors, recessionary trends and increasing cost of money, it would seem timely that companies figure out their best methods of dealing with cash flow flexibility. We have covered this topic in various member research on an ongoing basis.
‘This is because the needs of business are fundamentally more complex…Rather than end-to-end consumption – a relatively simple concept in terms of digitisation – cash flow, which is the lifeblood of businesses, is a complex equation of money in, money out and, above all, time….Until now, there has been little for businesses that need a real-time on-demand tech-based solution to the issue of cash flow. As Jamie Osborn, CEO at credit and payment platform Shift, explains, what was previously on offer was clunky and slow.’
From what we can tell from a quick website review, in addition to some standard facility through overdraft, the firm also offers a trade account, which allows the placement of invoices into a portal and have suppliers get paid within a day, and then the buyer can select the terms by which they will pay the fintech. It is not clear if the fintech is providing the lending capital or the assets are passed into a marketplace for additional ‘funders’ to bid on certain assets. Either way, this is the reverse factoring model whereby the buyer’s credit is used to repay suppliers faster. It is one of the more popular supply chain finance vehicles.
“If you actually totalled up all those receivables, the SMEs themselves are the fifth largest bank in the country. Their core competency isn’t underwriting, it’s not sizing limits, it’s not collecting payments….“It’s none of those things and yet they’re forced into this market through no fault of their own.”…Shift has already found a strong and loyal following in the building sector where Mike LoRicco, general manager, membership, for HBT, a buying group for independent hardware and building supplies, works with Shift to give his members access to more flexible trade and payment solutions…..“Trade-based stores are often having cashflow problems because the builders are stretching payments out,” LoRicco says. “I heard about Shift from some of our members who said it had freed up their cash flows and decided to pursue it.”
Improving B2B cash flow management requires businesses to look beyond simply accelerating individual payments. Companies need tools that provide greater control over the timing of cash coming in and going out while supporting healthy relationships between buyers and suppliers.
Technology-enabled trade finance and payment platforms offer another way to address that challenge. Solutions that allow suppliers to receive funds quickly while buyers retain flexible repayment terms could be especially valuable for SMEs facing extended payment cycles. As economic pressures increase, the ability to combine payment automation with working capital flexibility may become an increasingly important component of B2B financial operations.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group.
