Today’s global supply chain disruptions are leaving lots of B2B merchants scrambling to find new routes and suppliers, leading to a ‘trade gap’ of outstanding receivables. And this gap is huge: estimated at more than $3.1 trillion per day, PYMNTS research shows.
However, many of these vendors still don’t have much leverage when it comes to getting buyers to make timely payments, let alone have the power to set favorable terms. Our CEO, Brandon Spear, recently joined a PYMNTS panel with four other payments executives to discuss their insights into this trade gap, the need for working capital, and related B2B payments trends.
The Rise of B2B Payment Platforms
Alan Koenigsberg, global head of new payment flows, Visa Business Solutions, kicked off the discussion by noting that giving vendors the financial leverage they need is not simply a technology problem, a payments problem, or a business model problem—it’s an amalgamation of all those issues.
The four panelists—our CEO Brandon Spear; CredAble Executive Vice President and Head of Credit Ranjit Singh; Joor CEO Kristin Savilia; and Plastiq Chief Product Officer and Chief Technology Officer Stoyan Kenderov—discussed ‘choke points’ in B2B working capital access.
Savilia said that 2020 was a shock to the system, and companies were initially trying to reallocate goods rather than look for capital. “But this year,” she noted, “2021 is more about looking for working capital to keep businesses going.”
As the conversation continued, Brandon noted that several traditional sources of funding dried up; most banks were reluctant to take any risks during the economic downturn, including extending working capital to business clients. This financial environment resulted in disproportionate working capital and supply chain finance access, with larger suppliers generally doing better than smaller ones.
Simultaneously, businesses of all sizes have had to adapt to the new pandemic-fueled demands of ecommerce. Kenderov watched as firms of all sizes and across all verticals had to move online, noting that even some traditional B2C brick-and-mortars, such as coffee shops and karate dojos, made the leap online.
“The great digital shift compressed years’ worth of transformation into just 18 months,” Brandon explained. “The minute you had your whole workforce outworking, remotely, you had to re-engineer these processes. It could be as simple as you used to use to take paper checks. And all of a sudden you don’t have somebody at the office processing the mail. How does the check get into the bank account?”
This is where the panelists all agreed that they are seeing the supply chain evolve. “As part of that evolution,” Spear said, larger buyers—namely, manufacturers—are increasingly going direct to their end customers. That means buyers must grapple with breaking what Spear called the ‘bulk problem.’
“How do I deal with the fact that I used to have 10 distributors or resellers?” he continued. “And now I’ve got 10,000 end customers, and I want those relationships and I want the data. I want to know what they are buying, but I don’t necessarily have the process or the skillset or the muscle memory to deal with paying 10,000 people or to deal with providing lines of credit to 10,000 people.”
The high-level solution, the executives agreed, is embedded B2B payment platforms, which can eliminate bank underwriting. Kenderov described bank models as ‘outdated.’ “They take offline data, they take large amounts of data and crunch them, and they look at longevity of relationships. All of that is inadequate for a world that is retooling very fast to online commerce and needs access to flexible financing.”
Looking ahead, Savilia said suppliers are gaining more leverage than they had before in setting payment terms. They’re embracing B2B payment platforms that can handle invoicing, terms, BNPL for B2B, and more.
A Bright Future for B2B Payments Trends
This is an exciting time for B2B companies looking for growth opportunities by pivoting to an online and direct-to-end-customer model. Against that backdrop, said Brandon, B2B payment platforms are leveraging new data streams to make more accurate, real-time credit decisioning. Plus, purpose-built fraud protocols can help minimize identity theft, a growing hazard as businesses ‘meet’ online. The post-pandemic supply chain will take months to unwind, well beyond any one company’s control. However, vendors can start taming the trade gap with the right working capital solutions. That’s why these B2B payments trends are mission-critical for businesses that want to stay competitive today—and into the future. Watch the entire PYMNTS panel discussion for more insights.