How to Deliver a Frictionless Payment Experience for B2B Suppliers

The future of payments is online, but how can the invoice factoring industry make the best of a situation in which buyers want payment plans and suppliers want immediate payment? Steven Uster, co-founder and CEO of FundThrough, talks about the benefit of partnerships, embedded finance options and the obstacles both present.

BY STEVEN USTER, CO-FOUNDER AND CEO, FUNDTHROUGH

Payments should be a frictionless experience for everyone involved in a transaction, but so often, the focus is on business-to-business (B2B) buyers. The invoice factoring industry, however, is in a unique position to improve the experience for B2B suppliers, especially suppliers selling to large buyers, by playing a vital role in delivering this experience, particularly with the rise of embedded finance in B2B payments.

Currently, B2B payments account for an annual spend of more than $120 trillion and are anticipated to grow. However, to harness the opportunity that exists in the B2B payments market and address some of the newly arisen challenges for suppliers and the platforms they use as embedded finance moves into B2B payment strategies, the factoring industry must evolve.  

Partnerships Are a Win-Win-Win

Partnerships between B2B platforms and factoring companies can offer big benefits to clients, suppliers and industry leaders. As an example, when invoice factoring is offered through technology integration, it is easy for supplier clients to select which invoice they need funded. In addition, partnerships also help to ensure the setup process for factoring is extremely easy and fast. Clients are also granted access to online, self-service interfaces that help provide a seamless payment experience, especially with the rise of embedded finance. The option to get paid is built right into an existing workflow, enabling suppliers to skip the hassle of moving between multiple platforms.

Partnerships are also mutually beneficial for companies choosing to join forces with other factoring industry players. This partnership model offers no-touch program administration, adds a value proposition and enhances revenue opportunities from clients. For example, partners can add valuable services that complement their current product lineups.  

From FundThrough’s experience, partnerships enable us to meet clients where they are. Our partnership with QuickBooks in Canada has opened new doors for FundThrough to speak directly to small businesses in Canada more frequently than ever before. Our joint initiatives include a mix of marketing and communications channels that share consistent and compelling messaging, directly leading to both first-time funding and repeat business.

While we know these types of partnerships work, it is also evident the nature of partnerships is changing with the rise of embedded finance, particularly in B2B marketplaces as well as other apps and ecosystems.

Embedded Finance in B2B Payments

Embedded finance is transforming multiple industries. Many of the examples that get attention are business-to-consumer models like insurance premiums, paying for parking within Google Maps, ride-sharing apps and others. Similarly, embedded finance is now making its way into B2B payments strategies. While B2B markets remain opaque and intermediary-driven with orders and payments flowing via email, fax and paper check, in 2020, almost one-third of global sales came from those ecosystems. Two examples are B2B marketplaces and online invoicing platforms catering to specific verticals or B2B businesses generally.

B2B marketplaces are essentially self-service platforms that make it easy for businesses to buy and sell their goods and services online. Transactions are transparent and suppliers can connect with buyers on a broader scale. These platforms are taking the process of finding professional services and supplies — and paying for them — online. Invoicing platforms also enable online payments by allowing suppliers of goods and services to send, track and receive payments digitally from buyers. What’s more is embedded finance takes B2B marketplaces, portals and apps to new levels of service and value by enabling them to include invoice funding in their digital products.

As exciting as these developments are, this emerging change to how B2B companies buy and sell is bringing its own set of market problems. Solving these problems should be the future focus of any partnership a company considers.

Payment Problems Facing B2B Marketplaces, Portals and Apps

While the need for embedded finance in the factoring space is clear, the specific features of any financing method must evolve to solve some of the problems that are brought about:

• Excluding payments from the experience decreases stickiness and value. Handling payments offline forces buyers and suppliers out of the platform to complete the transaction, decreasing stickiness and value of a digital experience.

• Buyers want to pay later, but suppliers and platforms want to get paid now. Payment terms of 30, 60 or 90 days are a given in B2B transactions, and buyers (or anyone paying an invoice through a portal) still expect them. On the other side of the coin, suppliers and the platforms themselves want to be paid immediately.

• Increased risk for platforms. In an effort to win supplier loyalty, many marketplaces and portals have been extending the usual credit terms to buyers while paying suppliers quickly. This puts the credit risk on the platforms themselves, forcing those companies to do their own underwriting.

• Many platforms don’t want to use their own capital. Extending credit to buyers ties up capital that many marketplaces, portals and apps need available, especially if they are growing quickly.

While these only are some of the immediate issues facing B2B marketplaces, portals and apps, they are compounded by larger trends affecting B2B businesses: ongoing supply chain disruption due to the COVID-19 pandemic, an increasing number of millennial decision-makers who prefer buying and selling online and the need for data to create personalized digital experiences (that will drive more stickiness and transactions for platforms).

The good news is a technology-focused approach can address these trends and solve these challenges while enabling suppliers to sell and net now. But that still leaves two questions:

• Do non-financial companies buy into the industry buzz that every company needs to become a fintech?

• How can the invoice factoring industry make the most of this opportunity?

The Partnership Opportunity

With invoice financing as an embedded finance solution, non-financial companies do not need to become fintechs. Partnering with a technology-enabled invoice factoring company allows these companies to avoid the cumbersome requirements of becoming a fintech while still reaping the benefits of digital payments. Here are just a few:

• Embedded invoice financing gives buyers and sellers what they want. The way invoice financing works lends itself well to solving mismatched payment expectations. Embedding this process into marketplaces, portals and apps also takes away the credit risk since these parties will have a partner to do their underwriting.

• Cash flow increases. Without having cash tied up in extending credit to buyers, payment marketplaces, portals and apps can use their cash to grow and compensate for the unexpected, such as inflation and COVID-19 supply chain disruptions. Their balance sheets will also look more attractive since they’re not carrying extra debt financing.

• Stickiness and value improve. Being able to buy on credit or get paid immediately are value-adds for both buyers and suppliers and provide a point of differentiation. Because buyers stay within the experience (or workflow) to pay, they’re more likely to follow through with a purchase and are also likely to buy more, incentivizing suppliers to stay on the platform as well.

Payments are causing pain for many B2B marketplaces, portals and apps, but there’s an opportunity here for invoice factoring organizations, as these parties turn to the industry for help in embedding instant invoice payments to add more value for buyers, suppliers and platforms alike. Factoring companies that embrace this partnership model will reap the benefits of the rise of embedded finance by enabling a frictionless payment experience for everyone involved.

Steven Uster is the co-Founder and CEO of FundThrough. He’s been active in the alternative finance space since 2009. Prior to FundThrough, Uster founded Eldridge Capital to provide short-term, asset-backed financing and accounts receivable factoring to small- and medium-sized companies and started Zillidy, a personal asset lender for individuals and business owners. Prior to that, he was an investment banker in New York at UBS and a founding employee of Centerview Partners.