Not all that long ago, capital was a commodity, Eliot Buchanan, CEO of B2B payments platform Plastiq, told Karen Webster.
The credit spigots were open. Interest rates were cheap, and many small- to medium-sized businesses (SMBs) could get buy on a mix of their owners’ personal credit cards. Commercial payments may have been a bit of laggard in payments modernization — and then suddenly, the pandemic stymied supply chains, roiled financial services and led many companies into a cash crunch.
The world is changing for B2B payments — and for the companies that seek to change the way SMBs access the cash they need not just to survive but thrive.
All too often, in the drive toward modernization, SMBs embrace what Buchanan termed a “moment in time” solution that may give them unique insight into bits and pieces of their operations. Rarely do those static solutions give them the holistic view of their cash positions, fund flows and overall financial health.
The platform model from companies (including Plastiq) can offer a data-rich, real-time path toward more efficient operations, tied in part to more efficient cash flow that’s rendered on demand.
The help is urgently needed, he said, because SMB owners may be overlooking some of the most basic tenets of financial health. Suppliers want to be paid sooner, and buyers want to be paid with terms (and hold onto their cash a bit longer).
Right now, the biggest challenge facing SMBs is automation, a critical factor in an age where labor markets are tight, and where many firms cannot find the (human) help they need to address various pain points and improve cash flow.
At a high level, Plastiq is at the crossroads between payer and supplier, and the company offers SMBs a choice in how to make payments. It also provides automation efficiency with payables and receivables and unlocks cash flow from business credit cards and instant, short-term financing. Many small firms think they are using a flexible solution when paying their vendors; they don’t realize they can accept payments across platforms regardless of how their buyers want to pay.
A common thread has run through the company’s past, present and future launches: SMBs need a flexible way to pay their vendors, using existing credit. There’s no real need to encourage SMBs to take on new credit sources when there is plenty of opportunity to extend funding/credit to them in a form that they already understand.
In a nutshell, most of these SMB owners, especially those in the United States, already have several credit cards in their wallets (digital and real-world ones) and have been using those cards for decades (as consumers).
Buchanan noted that the platform offers SMBs the flexibility for payments to be made to suppliers without having to wait for 60, 90 or even more days to elapse. The platform offers a simplified, single way for buyers to pay (they may have a favored card that they’d like to use for all their purchases) and provides optionality for the enterprise/receiver that is collecting money.
With Plastiq, he told Webster, the SMB can use the existing cards they already have at their disposal to fund their largest suppliers and vendors who typically might not accept those cards. In doing so, the SMB has access to short-term working capital, without having to take out bank loans or tap new credit sources, which may be hard to get.
The SPAC Deal
The conversation came against a backdrop in which Plastiq said earlier this month that it would go public via a merger with Colonnade Acquisition Corp. II, a special purpose acquisition company (SPAC). Plastiq will have an implied estimated enterprise value of $480 million and will use the proceeds from the transaction to grow its business and expand its product suite.
Buchanan said the merger with the SPAC exists primarily as a funding mechanism for innovation, a way that is different from as recently as a year ago when “everyone could raise money — whether private or public, it didn’t matter.”
The SPAC deal, he said, is one that promotes a successful and significant capital advantage, which in turn is a “prudent” strategic advantage. There’s a stamp of approval that comes with making the transition to the public markets, that Buchanan said will help Plastiq attract talent, go to market with new offerings and forge new partnerships — and even use stock as currency for acquisitions.
The Network Effect and the Gateway
As to the network effect, Buchanan said suppliers like to promote the fact that they can accommodate the payment options that their client firms have been requesting.
The platform exists as a “gateway product,” in Buchanan’s words, that opens the door to other, ancillary offerings that can solve a variety of pain points and let SMB owners focus on the minutiae of running their firms on a day-to-day basis. Plastiq, then, has the strategic ambition to keep evolving from a payables solution to an operating network for SMBs.
“Capital is indeed an advantage, especially when other firms don’t have it,” Buchanan said.
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