screen shot 2015 08 14 at 12 07 19 pm SupplierPay Drives Few Results, Spurs Alternatives
One Year In: SupplierPay Drives Few Visible Results, But Much Needed Awareness

screen shot 2015 08 14 at 12 07 19 pm SupplierPay Drives Few Results, Spurs Alternatives
Just over a year ago, the Obama administration announced SupplierPay, a partnership with the private sector designed to encourage large companies to expedite supply chain payments and boost cash flow for small businesses.

As SupplierPay marks its first anniversary, some argue the initiative, which is currently supported by 47 leading companies, including Apple and Coca-Cola, is off to a good start, while others counter it has stumbled out of the gate. Since its launch, several thousand small businesses have qualified for accelerated payments and financial assistance, according to self-reported results from a few participating companies.

While SupplierPay has certainly brought attention to long payment cycles — a major problem for small businesses — it doesn’t appear to have reached the scale hoped for by the White House. Instead, many of the approximately 30 million small businesses in the U.S. are turning to alternative lending solutions to help them bridge the payment gap to grow their business, make payroll and pay their own suppliers.

screen shot 2015 08 14 at 12 07 19 pm SupplierPay Drives Few Results, Spurs Alternatives

SupplierPay: Good Intentions, No Enforcement

screen shot 2015 08 14 at 12 07 19 pm SupplierPay Drives Few Results, Spurs Alternatives
SupplierPay’s stated goal is for companies to take active steps to lower the working capital cost of small business suppliers, either by paying these suppliers faster or facilitating access to working capital at a lower cost. Compare those tactics to the hugely successful QuickPay, another White House-led initiative that requires federal agencies to cut payment terms to small business contractors from 30 days to 15 days, and it’s clear SupplierPay leaves room for a lot of ambiguity.

Beyond vague goals that are hard to measure, it is difficult to accurately gauge the impact of SupplierPay because reporting results, like taking the pledge, is completely voluntary. Consequently, only a few companies have reported results, such as Intuit, Lockheed Martin and Siemens.

The impact of those corporations’ efforts on the affected small businesses cannot be understated, and that’s thanks to SupplierPay. But what of the other participants? Information about their efforts is hard to come by, making it impossible to know what, if any, changes they have made. The lack of enforcement means companies that take the pledge are not held accountable. This is unfortunate, as the more tangible outcomes are shared, the more traction this movement gains.

screen shot 2015 08 14 at 12 07 19 pm SupplierPay Drives Few Results, Spurs Alternatives

Alternative Lenders: Bridging The Payment Gap

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With some companies putting a greater squeeze on suppliers by extending payments to 120 days and banks reluctant to extend loans to small businesses, the need for solutions in this space is paramount. Spurred by stricter bank regulations that have resulted in four in five small businesses being rejected for a bank loan, a new class of alternative lenders, many of them targeted at small businesses, has emerged as a scalable solution to these working capital challenges.

The alternative lending industry has more than tripled in size since 2006 and is approaching $500 billion in managed assets. Millennial small business owners have led the charge, turning to non-traditional lending services with greater frequency than other generations. Some popular alternative lending services include the following:

  • Small business owners who need quick approval for short-term loans (i.e. 1-24 month terms) use OnDeck, Kabbage and others to borrow against revenue expected from future sales.
  • Another option is invoice factoring for B2B businesses. Invoice factoring companies, like my own company (BlueVine), give businesses advances on their unpaid invoices. The advance is typically between 85-90 percent the value of the invoice. The remaining, minus fees, is returned when the invoice is paid.
  • Businesses with a high volume of credit card transactions can use merchant cash advances, a lump sum payment given in exchange for a share of daily credit card sales. Providers include CAN Capital, Square and even PayPal.

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Some of these options can be more expensive than a bank loan, but small businesses are more likely to be approved with these non-bank lenders, and at a much faster rate with little to no paperwork. Just as one would do with a bank loan, it’s important to talk to several lenders to figure out the best financing option based on the amount needed, duration of the loan and APR.

SupplierPay is a step in the right direction, but its footprint and impact has been light. To make as broad an impact on small businesses as alternative lending, SupplierPay would need to become a law with clear guidelines, and robust enforcement — something that would require congressional action. The White House’s decision to make it a voluntary initiative speaks to the realities of Washington politics and limits of government-sponsored solutions.

Still, just over a year in, SupplierPay has sparked a much-needed conversation about the increasingly strenuous payment terms large corporations place on their small business suppliers. That, in and of itself, makes the program a net positive for the country, and small businesses.

screen shot 2015 08 14 at 12 07 19 pm SupplierPay Drives Few Results, Spurs Alternatives

This article is written and provided by Eyal Lifshitz. Eyal is founder and CEO of BlueVine, a leading online provider of working capital financing to small businesses, and a former principal at Greylock IL (now 83North).

The views, opinions and positions expressed within this guest post are those of the author alone and do not represent those of CBS Small Business Pulse or the CBS Corporation. The accuracy, completeness and validity of any statements made within this article are verified solely by the author.

 

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