Embedded Finance and B2B Payments: Revolution We've Been Waiting For
Challenges are just opportunities for growth and this truism certainly applies to B2B transactions. Not only for the many nuances involved in business deals but for the innovations that have grown out of this adversity.
Embedded finance has revolutionized B2B payments between businesses and has been able to address many of these challenges.
Despite the economic gains in 2021, 79% of small businesses have struggled to pay their suppliers, which is up from 71% prior to the pandemic.
Almost a third of small business owners attribute not getting paid according to the agreed-upon terms as a primary contributor to cash flow issues that can reduce business growth, shut down projects or expansion plans, and lead to a missed investment or hiring opportunities.
Challenges for B2B Payments—Scale, Security, Synergy, Delays, and Processing Fees
One of the main problems with B2B payments lies in its very nature of dealing between businesses, meaning everything is done on a greater scale—both successes and failures. When deals fall through or experience delays the cost is more than just a dollar amount in late fees, but can also result in damaging relationships with critical suppliers.
These larger business transactions are targets especially with the recent rise in cybercrime which makes additional security and verification steps a necessary burden.
Due to these added security measures, B2B transactions can take longer than more simplistic B2C transactions with individual customers where payment is immediate. Not only does each transaction take longer, but these B2B transactions are part of essential daily operations and take place in higher volumes, accordingly increasing the chances of delays.
Processing Fees 💸
It is not just the size of the transaction that impacts business dealings, but how that transaction is performed and whether both parties agree on the same method—bank transfer, wire transfer, credit, debit, prepaid cards, payment gateways, or more obsolete methods like cash or check.
Each type of payment has its pros and cons which are generally determined by transaction fees. Payment gateways in particular require additional costs totaling 2-5% of the transaction which contributes to the business overhead.
High processing costs are cited as a major challenge by 35% of businesses with the typical supplier payment costing $8 to process.
Most businesses have their own procedures for B2B transactions and should expect an occasional clash of ideologies that may require compromise with business partners or suppliers to achieve congruency.
There are not many businesses that can afford to keep doing business the same way they have always done especially with the pandemic forcing the industry to evolve and this includes the 47% of small business owners who have started accepting new forms of payments during the pandemic.
The businesses lagging behind some of the recent digital advancements will have an even harder time manually tracking transactions and reconciling their bookkeeping.
Many manual paper-based forms of payment remain in corporate processes such as reconciliation between purchase orders, notes confirming goods received, bank accounts, Accounts Receivable, Accounts Payable, and customer contracts.
Most Common B2B Transactions—Supply Chains, Property Management, and Freight Forwarding
Supply chain disruptions have been an unfortunate hallmark of the pandemic, but these B2B transactions between businesses and their suppliers comprise a significant portion of the kinds of transactions that are critical to daily business operations.
The recently battered restaurant supply chain is one example that depends on farmers, delivery drivers, and any processing or production steps along the way involving additional vendors.
The peak of the pandemic shut restaurants down except for takeout forcing foodservice suppliers to make rapid adjustments to the reduced demand as people turned to cooking at home instead.
As a result, perishable food became stranded along the supply chain as restaurants canceled their food orders citing a decrease in dining out compounded with the labor shortage—affecting everyone from the wait staff to serve the food to the availability of delivery drivers to transport the product before it could go bad.
The story of one humble produce vendor in California currently owed roughly $100,000 from Pump Restaurant and Villa Blanca is, unfortunately, becoming a more universally shared experience among vendors and suppliers.
The late payments across supply chains that persisted throughout the pandemic have shown a true need for supply chain solutions that embedded finance can provide.
One of those embedded solutions starts by addressing the current nature of fluctuating demands making it difficult to properly schedule independent truck drivers to deliver produce to restaurants.
Embedded finance creates opportunities for commercial drivers to obtain credit for critical operations such as fuel financing, vehicle maintenance or insurance, and buying new vehicles to meet demand as they need it instead of waiting for loan approval.
Property Management 🏘️
Property management is another major component of B2B transactions between landlords and the many service providers necessary to upkeep a property from landscapers, plumbers, and any other repairs or renovations requiring contractors.
Much of this type of work operates under the gig economy category and Workflexi—somewhat of an analog to the popular Home Adviser app—uses embedded finance to connect workers with people who want to hire them for a job where payment is completed on the same platform. Workflexi’s payment gateway enables immediate payment and eliminates payment settlement delays that used to take 5 to 6 days.
Freight Forwarding 🛩️
Another exemplary application of embedded B2B finance is freight forwarding which involves moving goods from the seller to the buyer.
Freight forwarding requires audit and payment services between importers, exporters, truck driving companies, airline organizations, customs agencies, port authorities, and ocean carriers—all of which can be streamlined with embedded finance to ensure these entities are paid accurately and on time.
Freight forwarding companies like Flexport are building cross-docking warehouses at all major global population centers to bring these transportation services together.
While the goal is to avoid transit delays that can cause inventory to spoil, sometimes they are unavoidable to use embedded finance to insure cargo inventory, finance trade, and provide transit oversight in real-time.
The Staying Power of Embedded Finance—The New Gold Standard
Embedded finance can help prevent some of the headaches that have become so common with supply chains, property management, and freight forwarding throughout the pandemic.
With so many other unavoidable complications that are simply the cost of doing business the benefits of seamlessly integrating financial services with embedded finance are priceless—not that it isn’t also adding value.
Embedded finance is the catalyst that will speed up transaction times while making them more secure in the process and even reducing the costs of doing business. Embedded finance can do expedite the transaction process by offering pre-approved financing options for eligible businesses which increases that company’s revenue capabilities.
Embedded finance infrastructure may come with some initial costs to set up, but the profits and benefits in the long run far outweigh those expenses with B2B payments totaling $18.5 trillion, accounting for over 76% of payments in the US.
Current forecasting models predict that companies utilizing embedded finance services will experience five times the revenue growth by 2025 with 40% of the payments industry migrating to an embedded model. Numbers like these should motivate every business owner to proactively enter the embedded finance market and get ahead of the impending transition—they simply cannot afford not to.
Ultimately, B2B embedded finance benefits not only the businesses working together to create their product, but savings from conducting business more efficiently can be passed on to customers as well.
Furthermore, embedded finance enables businesses to customize their offerings and services to improve the customer experience.
HUBUC looks forward to partnering with businesses to take advantage of all the benefits embedded finance has to offer.