Supplier Payments on a Marketplace: A Strategic Approach to Growth

When you're running a marketplace, it's not just about selling—it's also about buying. After all, without your trusted sellers, what do you have to offer your cherished customers? So, how do you master the art of managing supplier payments effectively?

Treasury is not just a financial matter. In reality, supplier payments on a marketplace can be a serious growth lever… If they are managed effectively!

Does all this seem a bit hazy? Here is a complete decoding to refine your overall business strategy.

1 – Supplier Payments on B2B Marketplaces: A Strategic Differentiator

As a leader or CFO of a B2B marketplace, you might not be fully aware of the strategic importance of supplier payments. Everyone talks about collecting payments from your customers promptly. However, at Aria, we believe that paying your sellers is also a strategic concern.

1.1 – Paying Suppliers on Time Is Crucial

Have you ever tried putting yourself in your suppliers' shoes? How would you feel if your customer paid you haphazardly? Every other month? Perhaps only when they remember or after multiple reminders? Simply contemplating this scenario is sufficient to recognise that managing supplier payments on a marketplace isn't something you can approach at random. This administrative task shouldn't be executed solely when you have enough money in your bank account.

1.2 – Suppliers Deserve TLC Through Timely Payments

You've often heard "the customer is King" It may be true, but don't forget, suppliers should also be treated like royalty in your marketplace. Without them, your platform wouldn't even exist. As an intermediary connecting suppliers and customers, your primary mission is to solidify this essential relationship.

It's therefore crucial to prioritise timely payments to your suppliers. Not only does it contribute to their own financial stability, but it also translates to loyalty towards your platform. When they are satisfied financially, they remain loyal to your platform and are less tempted to explore elsewhere. The more you build their loyalty, the more they recommend you to their peers. As the number of sellers grows, your sales soar.

1.3 – A Payment Experience Inspired by B2C

B2B transactions are typically more complex than their B2C counterparts, primarily due to variable pricing, significantly larger average order values, and industry-specific requirements.

Moreover, unlike the B2C world, the online payment experience, we're familiar with as consumers often doesn't seamlessly translate into the B2B arena. Yet, B2B buyers demand the same level of ease and convenience they enjoy as private customers, including access to order status, shipping details, billing information, and more.

To conquer these challenges, B2B marketplaces must provide a smooth (perhaps even unforgettable) payment experience. It's a strategic differentiator for user-friendly marketplaces.

2 – However, Marketplace Payment Terms Are Often Too Long

As a CEO or CFO of a marketplace, you're well aware that supplier invoice deadlines aren't arbitrarily set. In fact, lawmakers, eager to expedite payments within businesses, have established strict guidelines for B2B operations. Let's take a closer look at your obligations.

2.1 – What the Law Says About Supplier Payment Deadlines in Europe and the UK

In the UK and Europe, the standard legal payment term for B2B payments is 30 days from the date of delivery of goods or services.

Businesses can negotiate longer payment terms with their suppliers, up to a maximum of 60 days from the date of invoice or 45 days after the end of the month in which the invoice was issued.

There are also some specific cases where different payment terms apply. These include:

There are also some specific cases where different payment terms apply. These include:

• 45 days for periodic invoices
• 90 days for purchases of goods in franchise of VAT
• Specific terms for certain industries, such as food and logistics

2.2 – Why Your Marketplace May Sometimes Struggle to Meet Its Payment Deadlines

It's like trying to square a circle. Your cash reserves are running low, but here come the supplier invoices, along with payrolls, social charges and VAT obligations knocking at the door. In such a tight spot, the temptation to delay payments to some of your suppliers can be almost irresistible.

In other scenarios, suppliers start sending you reminders because, well, those deadlines have come and gone. Yet, finding that particular invoice in your accounting labyrinth can feel like searching for a needle in a haystack. Sometimes, it's not just about finding the invoice– the whole approval process might be the missing piece. And let's be real, the Procure-to-Pay process is no walk in the park for a marketplace.

Then there's the waiting game with your customers. Sometimes, they take their sweet time to settle their bills, for various reasons. This brings us to the complex puzzle of working capital requirements (WCR), which is essentially the gap between incoming and outgoing cash flows for your marketplace operations. Trust us, managing WCR deserves a strategy of its own.

3 – Late Supplier Payments for B2B Marketplaces: Real Consequences

Ensuring prompt and proper payment to your suppliers isn't just good business practice; it's a strategic move. Legal obligations dictate timely payments, but various challenges can hinder your ability to meet them. Here's what you can expect if you don't address these issues head-on.

3.1 – Watch Out for Financial Penalties and Fines

The consequences for tardy payments in the world of B2B marketplaces are no joke. The law has, in fact, provided an array of tools. Brace yourself for the following:

• A fixed late payment compensation of €40 per invoice.
• An administrative fine specified in Directive 2011/7/EU on late payments in commercial transactions can reach €2 million for a company. Note that it can double in case of recidivism within 2 years.
• Late payment penalties at least three times the legal interest rate.

3.2 – Suppliers-Turned-Sellers Who Walk Away: A Real Growth Hindrance

Delayed payments don't just hurt your pocket; they can send your online sellers packing. In either scenario, the **flow of goods or services from these sellers starts to dwindle. As a marketplace, this means you'll need to double down on efforts to attract new partners.

For a marketplace, this kind of procurement mismanagement can be a growth killer. It puts you at risk of shrinking your offerings to customers on the platform, which, in turn, could lead to a dip in transactions.

4 – Mastering Supplier Payments in Marketplaces: Unlock Your Financial Potential

Effective management of payment deadlines is crucial for a marketplace. But what if you're short on cash? We'll explore several strategies to boost your cash flow when it's running low.

4.1 – Reduce the Customer-Side Working Capital Requirement to Improve Cash Flow for Supplier Payments

The first solution, not only for marketplaces but also for any cash-strapped business, is to try to reduce your working capital requirement. Lowering outstanding customer balances is one way to do it. Even a B2B marketplace isn't immune to payment delays. One approach to reducing this aspect is to request down payments upon order placement. However, it's worth noting that this isn't always the easiest path to increase your cash flow.

4.2 – Consider Factoring for the Customer Balances… Or Don’t

Another avenue for marketplaces is factoring. In this process, you assign customer balances to a specialised company, known as the factor. The factor then advances you the cash without waiting for the invoice due date. With this cash, you can pay your suppliers promptly.

One drawback of this type of financing agreement is the administrative complexity involved. If you're seeking an intuitive, agile, and one-time solution, this might not be the best choice. With factoring, you're financing the entirety of your current and future customer balances, not just a portion (e.g., certain invoices only).

4.3 – Embrace Embedded Invoice Financing for Your Marketplace

Still yearning for a cash flow boost that's seamless and effective? We've saved the best solution for last, one that comes with numerous advantages for marketplaces.

4.3.1 – What Is Embedded Invoice Financing?

Some e-commerce websites offer embedded finance functionalities to users before finalising their purchases. This means users can access integrated financial services on the platform. For example, they can opt for deferred payments or purchase cancellation insurance with just one click.

Embedded invoice financing, on the other hand, involves embedding invoice financing within an application, platform, or marketplace. In practical terms, suppliers on your marketplace gain access to instant invoice payments with just one click. Buyers, on the other hand, see no change. Regular payment deadlines still apply.

4.3.2 – At Aria, Instant Buyer Payments via API Is Our Specialty

At Aria, our vision is to make fast financing accessible to all businesses, even the smallest ones, with just a few clicks. We implement this service through API directly into your product. You meet your payment deadlines, preserve your cash flow, keep boosting sales, and accelerate your growth.

We recoup the advance by collecting payment from customers on their sales invoices. You only pay for the individual transaction's cost, not on all your sales.

Use Case: Boost Your Supplier Network and Retention on Your Marketplace With Aria’s Invoice Financing

• You are: a freelance marketplace, a B2B marketplace, or a tech company; your goal is to expand your supplier/talent pool and enhance retention.
• Use case: Marketplaces and tech companies often connect small suppliers with larger clients whose payment terms are longer. Consequently, they frequently face cash flow issues. With Aria, when a seller/freelancer/talent completes a task on your platform, they can either wait for the client's payment (which can extend up to 60 days for large enterprises with complex billing processes) or opt for instant payment.
• Benefits :
  • Boost acquisition rates: Attract more sellers to your platform with the promise of immediate payments.
  • Enhance seller retention : Encourage sellers to stay on your platform by offering immediate payment for their invoices.
  • Boost Gross Merchandise Volume (GMV): Payment delays no longer hinder higher-value transactions.
  • Secure Cash Flow: Aria bridges your cash flow gaps by financing sellers until your clients settle their invoices.
  • Seamless Integration: Easily integrate Aria into your platform through an API (initial manual testing on a few financing requests is possible). The Aria solution is also available as white-label.

Paying Sellers While Optimising Growth Is Possible

When it comes to expanding your marketplace, think about employing a powerful tool you might not have yet considered: optimising supplier payments. Embedded invoice financing solutions are tailor-made for this purpose, and they can work wonders for your business.