Melio CEO: Helping SMBs Break Their Paper Check Dependency

The ongoing pain wrought by the pandemic is especially acute for smaller businesses in the U.S., tied as they are to paper-based payments.

In the latest of a continuing series on B2B payments, Melio CEO Matan Bar told Karen Webster that payments flexibility is key in helping small and medium-sized businesses (SMBs) navigate the pandemic — and flexibility leads to better cash flow, the lifeblood of companies (no matter their size).

Taking a step back to address what’s happened so far, Bar noted that Melio bills itself as an “accounts payable experience” that is designed for small businesses based in the United States.

The company enables smaller firms in verticals such as restaurants and construction to pay their suppliers on an ongoing basis. In a nod to payments flexibility, Melio offers a (free) digital accounts payable and receivable solution for small companies. Bill payments can be done free of charge across ACH bank transfers or via credit cards for a few.

Melio’s focus on SMBs provides a unique lens through which to view the pandemic.

“At the beginning of March,” Bar recounted, “as the world experienced or was starting to see the implications of this pandemic, we weren’t sure how this would affect our customers, how this would affect our employees, our partners, and us as individuals.” The impact was felt disproportionately by smaller companies — and a significant number of them (restaurants in New York City, for example) had to close up shop in a single day. Never to return.

The trend may be in place for a few years, contended Bar.

But other unexpected events transpired, too, noted Bar, including the huge digitization shift that is still underway, bringing the businesses that did manage to survive embrace tech and electronic payments. There’s no longer time to sit on the fence when it comes to digital payments, he said.

“They can no longer pick up a check from a customer or hand out a check to a supplier,” said Bar.

Many companies have had to transition their wholesale payments workflows online, quickly. The smaller player that maybe only had a few dozen payments a month to process suddenly faced the same need to automate payables that spurred the pivot huge firms with thousands of payments had undertaken before the pandemic.

That urgency is underscored by a back office environment that has, for smaller companies, been anything but tech-savvy or rooted in the 21st century. As Bar noted, though SMBs may use Square readers and high-tech ways of giving end customers choice in how they want to pay, “when they go to the back office to pay a supplier, they’re still licking stamps, writing checks, stuffing envelopes.” Melio’s goal, he elaborated, has been to foster a Venmo-like experience when it comes managing accounts payable — and doing it all in an automated fashion.

But, as Webster noted, the growth of digital payments needs a two-way street: In order to send a digital payment, the other firm has to be able to receive a digital payment.

Why B2B Payments Are Different  

There are important differences to consider in nudging B2B payments toward the digital age, Bar cautioned.

“The main difference between a Venmo payment and a B2B payment, is that a B2B payment is not just a payment. It is a ‘work though,’” he said. “It has a very important ‘before’ and a ‘after’ — from managing or capturing invoice information to syncing with QuickBooks or other accounting software and reconciliation.” As long as digital solutions manage the end-to-end workflow efficiently, smaller firms will feel more comfortable transitioning their businesses online.

For digital payments, acceptance is the name of the game — and, in a strategic twist, paper might herald the death of checks — and pave the way for digital transactions.

As Bar explained, “One of the more important elements in any payment system is ubiquity. The check is the most ubiquitous method there is. Anyone can write the check, anyone can accept the check.” Digital solutions must strive for similar ubiquity. At the same time, Melio has found its important to continue to enable paper checks, as vendors might still prefer that payment choice.

“We do encourage the vendor to sign up [for digital payments],” said Bar. “So we include the brochure in the check envelope that tell them, ‘if you want to get paid faster, sign up and enter your bank account details.’ And then we switch many vendors from accepting checks to accepting bank transfer. So we use the check in order to minimize check usage.” Switching to online payments, after all, can shave days off the cash settlement journey (i.e., waiting for the check, depositing it, waiting for settlement).

Improving cash flow, said Bar, just might trump any initial discomfort SMBs have about sharing bank details with digital solutions providers. A one-day delay in having funds available in the bank can mean life or death for smaller companies.

And as 2021 rises up before us, he said, though it is unclear when (or how) some sense of normalcy will return for SMBs, Bar noted “it’s incredible to see the resilience that is being reflected by these business owners these days.”

But to keep that resilience in place, he said, the digitalization of B2B must continue. The increased use by consumers of Venmo, Square Cash and other apps has been pushing wholesalers and B2B payments to go online, too.

“The only solution to change a habits in a significant way is to offer a strong enough value proposition,” Bar said — and digital payments are proving their worth right now.