{"id":9959,"date":"2023-08-17T23:47:33","date_gmt":"2023-08-17T23:47:33","guid":{"rendered":"https:\/\/mysourcefunding.com\/startups\/unlocking-b2b-small-business-growth-by-speeding-up-the-payment-process\/"},"modified":"2023-08-17T23:47:34","modified_gmt":"2023-08-17T23:47:34","slug":"unlocking-b2b-small-business-growth-by-speeding-up-the-payment-process","status":"publish","type":"post","link":"https:\/\/mysourcefunding.com\/?p=9959","title":{"rendered":"Unlocking B2B Small Business Growth, By Speeding Up The Payment Process"},"content":{"rendered":"
\n

Lara Hodgson and Stacey Abrams\u2014yes, the politician and activist\u2014founded Now Account to make it easier for small businesses to access financing. By providing a credit card-like system that pays sellers quickly (minus a one-time 3.5% fee), Now Account allows small businesses to grow without being a “free bank” for their customers. There is a $40 billion unmet demand for financing for people of color alone. This financing option has the potential to unlock substantial economic growth.<\/p>\n

Understanding Small Businesses\u2019 Payment Problems First Hand<\/h2>\n

Hodgson and Abrams met at a leadership conference in Atlanta. They teamed up in 2010. Since then, they have created three companies. The second business\u2014Nourish, which sold a patented line of spill-proof purified water for infants and toddlers\u2014gave the duo a bird’s eye view of the challenges small businesses face when financing growth. Many of their customers don\u2019t pay their invoices in 30 days, 60, or even 90, making it near impossible for small businesses to meet payroll and pay suppliers.<\/p>\n

\u201cI joke that [some companies] treat 30 days net due as just a suggestion,\u201d said Hodgson. The pair had a large order from Whole Foods for which the 30-day net due obligation had long passed. More orders were coming in, but they didn\u2019t have the cash reserves to meet payroll and pay suppliers without payment. As hard as they tried, they couldn\u2019t stitch together financing and couldn\u2019t accept the order.<\/p>\n

After Hodgson dropped her son at daycare, she put her head on the steering wheel of her car in the parking lot and cried. \u201cI thought I’d ruined everything,\u201d she thought. \u201cI have to turn down orders, which is not what you worry about when you start a business.\u201d<\/p>\n

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When she told one of her suppliers about the problem, he said, \u201cEveryone has that problem.\u201d He listed her financing options, including a line of credit and factoring.<\/p>\n

Hodgson and Abams said, \u201cTimeout, what do you mean, everyone has this problem?\u201d Why are small businesses forced to be \u201cthe free bank\u201d to their customers? \u201cIf you think about it, the largest lender in the United States is not a financial institution,\u201d said Hodgson. \u201cIt’s collectively small businesses because every time you send an invoice and wait to get paid, you\u2019re extending a free loan to your customers.\u201d<\/p>\n

With their new insight into small business financing, they reviewed their options. All options required liabilities on their balance sheet. They found a local bank that charged high interest and a factor\u2014a company that purchases unpaid invoices at a discount, paying about 80% to 90% of the invoice, plus high fees. Unfortunately, after being approved, the factor\u2019s credit scoring model changed, leaving them without a source of financing, and they had to turn down the order and lose the opportunity it represented.<\/p>\n

A Light Blub Moment Leads To A New Small Business Financing Option<\/h2>\n

While having lunch one day, they realized that retailers and restaurants didn\u2019t have this problem. When their customers paid with a credit card, these small businesses received payment\u2014usually within 24 hours.<\/p>\n

Why wasn\u2019t there a credit card that worked for business-to-business? If there were one, Hodgson and Abrams could have paid their employees and suppliers and continued to grow. Whole Foods would now owe the financing provider, not them.<\/p>\n

Hodgson and Abrams decided to launch the first payment system to help small businesses, such as marketing firms and manufacturers whose clients are corporations or government agencies. The Now Account pays the small business quickly minus a one-time 3.5% fee. It feels like your customer handed you a Mastercard or Visa, even though they did not. The seller gets paid immediately, and the purchaser pays on their terms, even if it is six months later. Corporations and government agencies don\u2019t rely on credit card payments regularly because they get assessed interest and penalties once they go past the due date.<\/p>\n

The Now Account frees small businesses from being the free bank for the U.S. economy and allows the businesses to grow. \u201cIf you study what happened on the retail side, when the credit card came out, and retailers no longer had to wait to get paid, retailers grew exponentially, and the economy grew,\u201d said Hodgson. She believes this credit card-like system for small B2B) transactions will unleash tremendous economic growth.<\/p>\n

The pair launched Now Account by cobbling together small amounts of capital. \u201cWe couldn’t tell everybody about it,\u201d said Hodgson. They didn\u2019t have the cash to pay too many small business invoices. At this point, they were looking for proof of concept.<\/p>\n

Once they started, they got proof of concept and sought more significant sources of capital. They grew a little bit more. It\u2019s been a back-and-forth process. Grow the capital side, grow the client side, grow the capital side, grow the client side, and so on.<\/p>\n

Then the pandemic happened. There was a lot of uncertainty about funding. Still, they persevered and worked through it. \u201cIn 2022, we had almost 2.5 times growth,\u201d said Hodgson. On December 23, 2022, the Now Account closed a $225 million facility led by Goldman Sachs. That’s the first time they unleashed the capital side. Now they can turn their attention in 2023 to serving exponentially more businesses. So now, I’m back to scaling the client service side.<\/p>\n

It\u2019s taken a while for the companies that provide the capital facility to understand the issue related to the lack of access to capital that plagues small businesses. Most have never run a small business. \u201cWhat happened was that solutions got created that treated small businesses as miniature large businesses,\u201d said Hodgson. \u201cI’m very excited that in the last several years, we’re seeing more innovative financing solutions grow for small businesses.<\/p>\n

\u201cHopefully, we can finally level the playing field for small businesses,\u201d Hodgson said.<\/p>\n

How are you financing your small business?<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Lara Hodgson and Stacey Abrams\u2014yes, the politician and activist\u2014founded Now Account to make it easier for small businesses to access financing. By providing a credit card-like system that pays sellers quickly (minus a one-time 3.5% fee), Now Account allows small businesses to grow without being a “free bank” for their customers. There is a $40 […]<\/p>\n","protected":false},"author":1,"featured_media":9960,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[77],"tags":[],"class_list":{"0":"post-9959","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-startups"},"yoast_head":"\nUnlocking B2B Small Business Growth, By Speeding Up The Payment Process | Brandiary<\/title>\n<meta name=\"description\" content=\"Lara Hodgson and Stacey Abrams\u2014yes, the politician and activist\u2014founded Now Account to make it easier for small businesses to access financing. 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