Fixing B2B payments and financing

As we announce the launch of Kickpay and Y Combinator’s investment in our company, I’d like to take some time to talk about what our motivations, mission and vision are.

Our philosophy

We deeply believe that there’s something fundamentally wrong with how businesses interact in the supply chain.

I’ll try to explain how it works in a very simplistic way:

Currently, large businesses place orders with their suppliers, often with required “ship by” dates.

They then get invoiced when the merchandise ships or the service is performed, and will only pay 30, 60 or sometimes even up to 180 days after the invoice is generated.

The supplier thus has to figure out how to produce all that they’ve been asked in that short period of time, and more importantly has to bear the costs of buying the supplies, paying their employees, office rent and any other expense between the time of the order and the time of the payment.

Imagine walking into a coffee shop, getting a coffee and a pastry, and then walk out saying: “cool, thanks for buying the beans, coffee machine, paying the barista and the rent for this place. I’ll pay you soon-ish.”

That’s how it works in the business world.

Now, we know that getting credit from your suppliers is something that is very powerful, especially for someone just starting out who might not have the cash to buy inventory upfront, but this mechanic has degenerated given the power and leverage of large buyers.

And we don’t like that.

We do not believe that small businesses should act like banks, extending credit at 0% interest to their large customers.

Not only do small business get thrown around by the big guys — they also often don’t enjoy the same privileges with their own suppliers, meaning they can’t pay their suppliers, 30, 60 or 180 days later and have to scramble to finance their growth.

82% of businesses fail due to poor cash flow management / poor understanding of cash flow. — Jessie Hagen of US Bank

What’s out there now

This is not new. A lot of people are working on getting invoices paid faster, but it seems to us that most companies are just out for a quick business and profit opportunity and not many have a deep goal of solving a big problem.

A sample advertisement from a factoring company

Old-school invoice financing

We see a lot of incredibly old-school companies who try to lock businesses into blanket contracts for years, with usurious rates and a terrible experience (faxing documents, waiting for days, getting locked in multi-year contracts, etc.).

Nonetheless, last year more than $3 trillion worth of invoices were sold worldwide.

The average online business lending website

Online lending

We see a lot of companies offering loans with APRs around 70 or even 100% to businesses who (don’t know they) can’t afford the debt. These lenders are predatory in their nature and have absolutely no interest in the success of the companies they lend to.

Claims from two different “dynamic discounting” websites

Reverse factoring

We see a lot of companies working with big payers, incentivizing them to pay their suppliers “early” (earlier than the 60+ days it usually takes!) so they can earn a better ROI on their capital.

As you can see they are basically telling the big companies that they can use their suppliers as a “profit center”, and instead of paying them in time, they can first force them to extend them credit, and then force them to take a discount for reducing the term to 10 days.

And we just plainly hate all of this.

So, what’s our solution?

An open marketplace for businesses’ financial assets, specifically outstanding invoices.

We empower every business to automatically sell their uncollected revenue. This means that if a company is performing a service or shipping a product, it can receive its hard earned money the same day.

We use data, design and technology to simplify payments processes and reduce credit and fraud risk.

What we’ve tried to do while designing our solution is to not focus on improving against what was out there, but rather ask ourselves: what is a solution that just makes sense?

We truly believe that what we’re building will be a revolution in the way businesses handle their cashflow and, in the long run, how they get financed and pay each other.

Aligning incentives with businesses

By structuring our product as a marketplace we allow a fair price to be set by the market, removing the incentive to charge the highest amount on every transaction, differently than traditional financing companies.

Going forward

We have a lot of work ahead of us to fix how businesses transact and get financed.

As we continue to work on our marketplace, remove friction for businesses at every step in the process, automate most of it, get better data, refine our underwriting engine and get the product to more and more businesses — we wanted to remind ourselves, and all of our customers and investors, what we stand for and what motivates us in this hard adventure.

We hope you’ll join us.

Stefano, Andrew and Sean