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Business-to-business payments are too often a waiting game that can be detrimental to the survival of a small business (SME). With checks always at stake, small businesses not only have to wait to receive a check, but banks often impose a holding period that forces a company to wait even longer before seeing the funds it has paid.
The control system creates a financial environment in which a small business has money but can not use it. Financial technology firms have taken some approaches to this problem, either by trying to replace paper checks with different payment lines, or by trying to manipulate checks by tackling their particular problems.
CONEXT is looking to do a bit of both. This week, the company announced the launch of its B2B payment network, which allows a small business to turn a payment by check into usable funds via a prepaid card.
The solution works as follows: a small business owner can take a picture of a check and download it to his CONEXT account. The funds on this check are placed on their prepaid CONEXT card in minutes and the company can then make payments with this card or transfer funds from their prepaid CONEXT card to another. – whether in the hands of an employee or a supplier across the country.
According to Michael Casalini, founder of CONEXT, tackling the problem of rubbing paper checks into B2B payments is certainly a key target for the company.
"There are a number of hurdles to overcome for small businesses to be paid. – The first is the complete control system, "he recently told PYMNTS during an interview. "The control system has not really changed since [its] beginning. "
This is the starting point for CONEXT, which first introduced the services for small businesses to cash their checks more quickly, rather than waiting during the holding period of the bank. Casalini explained that the problem with this approach was that SMEs were getting money, which prevented them from actually using these funds.
The launch of the company's B2B payment network allows small businesses to charge funds received by check into a digital payment network and then make payments via a prepaid card. Suppliers who are also part of the CONEXT network are not billed when the funds are transferred to their prepaid card, which is another major sticking point for the adoption of the commercial card: the cost of acceptance by the supplier .
Casalini acknowledged that this type of solution was not new and compared the network to Venmo or Zelle. – with higher transaction limits and functionality designed for a business user. The situation as a whole, he said, is that the tool reflects much larger changes in the broader ecosystem of B2B payments, not only in the payment rails that facilitate B2B payments. but also in the way small businesses interact with the money they pay. .
"What our businesses tell us is that they wait so long for checks to be issued and then have to wait [them] that the funds do not stay in the bank as a deposit, "he explained. "The biggest misconception of our clientele is that they need to deposit money."
Digital payment networks for consumers and businesses often offer the opportunity to transfer funds currently held on the network to a bank account. However, small businesses need the money paid by check as quickly as possible – not so that they can deposit it, but to be able to return it and make their own payments.
The inability of SMEs to access liquidity has contributed to the growing emergence of late payments in the United States, which Casalini considered to be at the heart of the biggest problems facing small businesses today. Since the financial crisis of 2008, B2B providers have essentially turned into financiers for their own customers, lending goods and services while they waited months to be paid. What this means for small business banking is giving up what Casalini called "the deposit bank" and more of an "access" model of financial management.
"There are access banking services, but you will be loading funds on cards to access your money and use it. – do not let him sit on the account long enough to make a deposit, "he said.
The effects of these changes are reflected even more in the financial landscape of small businesses.
For small business loans, no longer making deposits would affect the way in which financiers mitigate risks and guarantee potential SME borrowers. Today, the problems of late payment and late payment and the inability to quickly use the funds paid to them by check encourage small businesses to seek working capital loans, in particular companies that do not have access to funds. deposits on their bank accounts. Small businesses looking to keep their cash in an electronic payments network will change the way lenders assess their creditworthiness – not in how much money they have in their bank accounts, but in the way they do business.
"We could provide very good information to companies that want to lend to our small businesses that do not have enough bank deposits," said Casalini, adding that the financiers could instead look at factors such as the quality of trading partners, the number of NSF checks and the payments they make. "This will almost provide a new form of underwriting available to the creative lender," he added.
No one can predict the exact path that small business financial services will take as they continue to innovate and evolve. What is certain, however, is that the industry is evolving and that these mutations do not occur in a vacuum. Instead, the evolution of B2B payments is closely related to banking, lending and the overall financial management of businesses and small businesses.
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