The banking and financial services sector is becoming more strategically focused and technologically advanced. It has to respond to growing consumer expectations while trying to defend market share against an increasing array of competitors who are each trying to eat their lunch through targeting a single specialist area of the wide banking services.
One such specialist service provider in the automated payments sector is Tipalti. Their service is particularly well recognized as an efficient method for organizations of all sizes to pay a growing crowd of freelance and gig-economy workers, including providers of open innovation challenge solutions, on time, with the right amount, and in the right currency without onerous exchange fees for either party.
Tipalti’s streamlined and automated payables process helps clients of all sizes increase profit by reducing payment errors and automating the process of large transactions; it prevents fraud; and helps to meet international regulatory compliances effectively.
Cash flow issues for startups and small businesses
And now they have introduced a new faster payment service called NetNow. Smaller and new businesses are particularly prone to cash flow issues, simply due to the money coming in and the bills that need to be paid not yet stabilizing in to any sort of a regular pattern. Slow payment from clients or unexpected bills may require a sudden and short-term cash injection. Or maybe an unforeseen business opportunity looks too good to miss, or let be snapped up by a rival.
Either way, a new startup business is unlikely to have built up a satisfactory track record and credit rating to qualify for support from a bank.
Late payment is a particularly big problem for smaller businesses. According to The Entrepreneur in 2017, US small businesses were owed $825 billion in unpaid invoices. It stated: “If SMBs were paid on time, they could hire an additional 2.1 million employees — and reduce U.S. unemployment by 27%.” Alternatively, startup entrepreneurs could invest more in plant and equipment; take on more speculative business; boost their marketing; build up a larger stock of inventory; or even pay themselves a bit more as a reward for their risk-taking.
In the UK late payments by large businesses are also a major issue for SMEs (small and medium enterprises). Recent research by Dun and Bradstreet revealed that “nearly half (48%) say late payments put their business at risk of failure” according to its recent report: ‘UK SMEs: Brexit and Beyond.’ The SMEs questioned in the research had seen the average amount owed to them rise by almost a quarter from £64,000 in 2017 to £80,000 in 2018, impacting cash flow and future growth.
Tipalti’s NetNow service enables any client to accelerate payment of an invoice, to receive some needed cash quickly, through rewarding the payee with a reduction off the amount. The example given by Tipalti is for a supplier invoice of $2000, the supplier can receive $1950 if they choose to be paid early.
What makes NetNow unique
This in itself is not new, but usually requires the payer and the payee to agree a long-term arrangement that will apply to every invoice. NetNow is flexible enough, and so seamlessly built in to Tipalti’s systems, to apply to individual invoices, one at a time.
Chen Amit, Tipalti CEO and co-founder commented: “At Tipalti, we understand that supply chain health is incredibly important for companies to maintain competitiveness, as it impacts their ability to execute on business plans. Supply chain financing is not a new concept. However, the frictionless way we have enabled it is. We are proud to be the only accounts payables automation vendor who offers this program embedded directly within its platform for easy payer and payee adoption.”
What it means for marketplace platforms
Marketplace platforms are two-sided networks where the supply chain (vendors contributing content, for example) are also revenue drivers, said Todd McGuire, general manager of supplier success at Tipalti. Many of the smaller firms – if able to receive payments 40 days earlier (while accepting a small discount on net amounts paid out) than might be seen with, say, 45-day terms – could take that accelerated funding and re-invest it into their operations to fund growth. It gives them a new funding source, he added.
