The following is an open letter to U. S. business and government agency leadership to join the #paytoday cause from Marten Abrahamsen, CFO at Fundbox
San Francisco, CA, April 30, 2020 (GLOBE NEWSWIRE) -- Much has been written in recent days about the plight of small businesses, and their quickly diminishing cash while they wait to access the next round of stimulus dollars.
According to a recent Womply survey of 2,300 small business owners, 1 in 5 local businesses would die within 30 days if sales stopped, and more than half will be dead within 90 days. Womply’s dynamic COVID-19 dashboard reveals dramatic declines in small business revenue across multiple business sectors nationwide, which puts millions of small businesses at risk of permanent closure if they don’t get urgent financial relief.
In the U.S., the slowdown has had a ripple effect on the network of businesses that serve small businesses. Many are now focusing their attention on the CARES Act, a law designed to provide fast and direct economic assistance for American workers. Indeed, some of these service providers have rewritten their roadmaps to help their customers apply (and get approved for) Small Business Administration (SBA) loans and U.S. Treasury funding, in an effort to help them get a piece of the stimulus before it runs out.
But before we bank our futures on hoping that the federal government alone can solve the massive economic upheaval created by COVID-19, we should first take a closer look at a systemic problem that’s plagued small businesses for decades, and is, in fact, larger in dollar value than the stimulus: slow payments.
In 2019, our company collaborated with PYMNTS and surveyed over 1,000 people in the U.S. who worked at companies of varying sizes, from solopreneurs to executives at enterprises. We learned that in the U.S. alone, there were *$3.1 trillion in B2B receivables owed at any given time. When we removed the substantial portion owed to enterprises, we were still left with an enormous sum owed to B2B small businesses: $900 billion.
We call this phenomenon the Net Terms Economy. It is the informal credit, often called net terms or trade credit, that businesses lend to each other, not issued or tracked by banks or even the Federal Reserve. Both parties in a transaction are incentivized to operate this way. The buyer wants extra time to pay, to stretch their payables. The seller wants to stay attractive in a competitive marketplace and close the deal. The result is terms where the seller gives the buyer 30 or 60 days, or sometimes longer to pay them.
The Net Terms Economy problem has been exacerbated in this economic downturn where buyers want to stretch their payables even further. There have been many articles in the past two weeks encouraging businesses to preserve their cash so they can outlast the coronavirus. That’s fine if you owe a huge enterprise with enough cash reserves to last them months, if not years. But to small businesses, it could mean the difference of staying in businesses or closing shop.
That’s why several companies that serve small businesses, including Fundbox, Alignable, Womply, Gusto, Business.com, and others, have started the #paytoday movement. #paytoday encourages enterprises and governments to pay their small business customers quickly so they can get more time to outlast shelter-in-place orders. If everyone does their part, a significant portion of that $900 billion could be sent to small businesses.
Since the COVID-19 crisis struck the U.S., Fundbox started paying its small business vendors every week, instead of every two weeks, and the company will continue to attempt to do so until the crisis ends.
There’s good reason to think this will have a meaningful impact on small businesses, aside from the obvious fact that small businesses are cash-starved right now. Just look at the SBA’s QuickPay program, started under the leadership of then-administrator Karen Mills with the purpose of paying small business vendors in 15 days, instead of the typical 30. **Academics have since studied the program and determined that even with that small change, going from paying net-30 to net-15, businesses that used QuickPay were better able to hire and retain employees. The change also had a positive effect on their Dunn & Bradstreet business credit score.
We should all be thankful that the federal government quickly pieced together several stimulus packages with additional funds ***now, totaling around ****$660 billion for small businesses. However, we should not assume that this alone will save all small businesses in the U.S. It won’t.
To underscore this point, a recent Alignable Pulse Poll taken among 38,500 small business owners from April 17 to April 20, 2020, showed that only 8% of small businesses that applied for PPP funding had received money, and another 14% were approved for it, but aren’t sure when or if it’s coming. Beyond that, 72% of small business owners who applied for the loans haven’t been approved yet. They’re in a state of limbo, and not sure if they’ll ever see the money they were counting on to weather the Coronavirus quarantines.
So let’s do our part as business and agency leaders by pledging to pay outstanding small business payables right away.
Together, we can make a difference and, now is the time to act.
- *(PYMNTS, 2019: Closing The SMB Receivables Gap)
- ** (reference: Harvard Business School, 2016: Government and Financial Tech Can Fix Cash Woes for Small Businesses)
- ***(Wall Street Journal, April 2020: House Approves $484 Billion Bill to Aid Small Businesses, Hospitals)
- ****(Forbes, April 2020: The Paycheck Protection Program Will Disrupt Small Business Banking
#paytoday was started by concerned tech companies that serve small businesses. We saw the data and realized that if we didn’t do something, many small businesses wouldn’t survive more than a month after the coronavirus quarantines began. So, we started this movement: if everyone just paid the money they owed small businesses right away, it would inject a huge amount of capital into the small business economy and give them a runway to outlast the virus. Our goal is to raise the visibility of the problem and mobilize enterprises and governments to get on board before it is too late. To learn more about #paytoday, please visit: www.paytoday.club
Fundbox is a leading financial technology company focused on disrupting the $21 trillion B2B commerce market by launching the world’s first B2B payments and credit network. With Fundbox, sellers (of all sizes) can quickly increase average order volumes (AOV) and improve close rates by offering more competitive net terms and payment plans to their approved SMB buyers. With heavy investments in machine learning and the ability to quickly analyze transactional data, Fundbox is reimagining B2B payments and credit products in new category-defining ways.
Fundbox has received numerous accolades for innovation including the prestigious Forbes A.I. 50, Red Herring North American 100, Forbes Fintech 50, CB Insights Fintech 250, Benzinga 2019 Fintech Listmakers, Forbes Billion Dollar Startup To Watch among others. Since the company’s founding in 2013, Fundbox has raised more than $300 million from a blue-chip group of investors led by Khosla Ventures, General Catalyst, Spark Growth Capital, and Jeff Bezos, and is currently experiencing incredible growth momentum.
For more information about Fundbox, visit fundbox.com.