There are few areas of the economy in which millions of dollars in goods and services could be received solely with an IOU. Yet, such a system prevails for the millions of U.S. businesses that engage in trade credit relationships with their business partners. One eye-popping figure demonstrates just how prevalent the “buy now, pay later” B2B payment practice has become: $3.1 trillion is the net amount U.S. firms are owed in accounts receivable on any given day.
It would be one thing if the system was working for businesses, but it’s not. This is the definitive conclusion of The Trade Credit Dilemma Report, in which PYMNTS surveyed more than 1,000 U.S. businesses, ranging in size and sector, including construction, landscaping and apparel. The analysis, in collaboration with Fundbox, found that trade credit places a severe strain on small and medium-sized businesses (SMBs), and their ability to run daily operations and invest in their futures. The report also examined new payment platforms that could offer SMBs an alternative to the strain of extending trade credit.
From one perspective, trade credit forces businesses to play the role of banks for their buyers and clients, which carries substantial risks and administrative burdens. Nearly one-third of surveyed companies said offering trade credit makes day-to-day operations more difficult, and about a quarter of them said it constrains their ability to make capital expenditures, expand production and purchase inventory.
A potential solution to these challenges may be immediate payment platforms, which allow suppliers to be paid immediately for a small fee, and allow buyers 30 days to pay in full without interest. The research found strong enthusiasm for these platforms, yet they’re used by fewer than 14 percent of surveyed businesses today.
To learn more about how businesses are coping with entrenched trade credit practices, and how new technology platforms can help them break the cycle, download the report.