Suppliers ‘Left Holding the Bag’ Due to Sluggish Trade, Un-Digitized Payments

Small suppliers often find themselves waiting weeks, sometimes even months, to access the payments they’re due for goods or services rendered. A conservative estimate from PYMNTS shows that SMBs are waiting on around $1.3 trillion in collective, unpaid invoices at any given moment.

By no means is it a new problem, but it’s one that’s becoming more pressing due to the COVID-19 pandemic leaving millions of SMBs short of cash. The trade credit gap is believed to be growing by the day due to supply chain snags causing delays in orders being fulfilled.

“With COVID and the things that have happened around the supply chain, we’ve seen a broadening of that trade finance gap,” said MonetaGo Chief Executive Jesse Chenard in an interview with PYMNTS. “People are taking longer to get their parts and their goods to places, and people won’t pay until they get their stuff, so it’s the suppliers who are left holding the bag.”

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The trade credit gaps exists due to the terms of business that the often much bigger customers impose on small suppliers. Large businesses usually won’t pay up until they are completely satisfied — and even when they are, the slow process of actually making those payments can mean it takes weeks before the money finally lands in the suppliers’ coffers. In light of COVID, it’s money that most SMBs desperately need, which explains why governments and organizations around the world are looking for ways to close that gap.

According to Chenard, the simple solution is to make it more attractive for financiers to provide credit access to SMBs without usurious terms, so suppliers will actually go for it. In order to do that, there must be a much bigger push toward digitization.

“The biggest enemy in this fight is paper. We’re dealing with data siloes, literally mountains of typed or printed paper, and with that there’s a great deal of room for fraud, doubt and uncertainty,” Chenard said.

When Chenard talks about digitization, he means the mundane stuff, such as putting invoices into a digital account system that allows it to be verified more easily.

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“That’s really the first step: getting the actual goods, invoices and inventory digitized and then being able to present that to banks,” he said. Once that’s done, it becomes much easier for financiers to verify that an invoice is legitimate and ensure that a supplier is able to pay if it extends credit to them.

One way to accomplish this is through e-invoices and tax promises, Chenard said. He explained that countries such as India and Mexico have introduced e-invoices, where the company can go to the tax authority and receive a unique, official invoice number. “That’s one way of de-risking. If you’re pledging to the government that you will pay taxes on this invoice, there’s a good chance that unless it’s an extremely elaborate fraud, the invoice is in fact legitimate,” he said. “So these kinds of smaller pushes, with digital checks and digital verification that get us away from paper, are really important.”

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MonetaGo is also pushing the needle on supply chain and logistics tracking, teaming up with various data providers to give financiers more confidence that business transactions are legitimate. So a company that’s financing a shipment of oil would, for example, be able to track the ship transporting it and ensure it’s in the right physical location. It can even verify that the port it’s supposed to arrive at has the capability to offload that type of cargo.

“There’s all sorts of little tricks we can do to authenticate things and de-risk the transaction,” Chenard said. “And it can be done at the high end or the low end.”

Some of MonetaGo’s tricks are more localized. In India, companies need to secure what’s called an E-way bill for tax purposes when sending a physical shipment of goods across state lines.

“That E-way bill has the description of the goods, the invoice details, all that sort of stuff,” Chenard said. “If you’re a financier and you’re providing credit to someone, these are all great data points to have.”

Eventually, Chenard believes MonetaGo will be able to combine these tricks with a common network, such as its fraud prevention network, to provide a way for financiers and companies to communicate with each other discreetly and consistently. This will enable faster and easier access to credit, he said, helping to close the enormous and growing trade finance gap.

“The Holy Grail for us will be to look at a business and through some kind of triangulation of data points, be able to say, ‘yes, that’s a legitimate business’,” he said. “We’ve got a lot of work to do to get there, but when we do, it will enable so much more commerce and trust in what is still an untrusted world.”