A $70 Billion Working Capital Opportunity
How virtual cards can help save small businesses and revitalize the fabric of the US economy
According to the U.S. Bureau of Labor Statistics, 2022 will be recorded as one of the years with the highest death rates of businesses since the turn of the century. The primary reason for such a level of fatalities is lack of funding or working capital. With 30% fewer businesses started in 2019 compared to 1970, reversing the course of innovation in the country is of paramount importance if we do not wish to see the fabric of our economy and society erode further.
Working capital is a necessity for any business to prosper. And in the world of Business to Businesses, not being able to offer credit is often a non-starter. According to CAPS Research, almost 80% of companies in the manufacturing and service sector request payment terms ranging between 30 and 45 days on their invoices.
But does it really have to be that way? We believe not. Digital innovation in the B2B procure to pay space can radically alter the fatal course of business disappearance. Indeed, procurement practices until now required invoices for a payment to be processed. This would in turn result in tying extensive capital for small businesses in dire need of it. Today, such invoices could be eliminated for about 35% of the global B2B commerce now conducted online. This number could even reach 80% by 2050 as digital transformations across sectors drive the frantic +20% annual growth of B2B e-commerce worldwide.
Digital technologies now make it possible for employees to buy online the way consumers do. Leveraging AI, such technology can apply controls and enforce policies. This combined with the use of virtual cards for payment at check out can eliminate the need for invoices. As major issuers have jumped into the virtual cards reality, companies working with their bank partners can benefit from payment terms they require to do business, making the working capital argument often attached to the need for invoices irrelevant.
This new approach to business procurement would not only make buying organizations more productive as their purchase to pay processing cycle times would drastically fall, but they would maintain credit while ensuring immediate payment to their suppliers. Adopting such technology would significantly strengthen their supply chains and make buying organizations attractive to suppliers and employees alike who would feel empowered by the reduced bureaucracy to get the job done.
In practice and accounting for the $2 trillion B2B business conducted in the US in 2023, we estimate that up to $70 billion of capital could be released in the economy. This would create a massive stimulus for small business growth and give them a fair fight to make their ventures successful. Virtual card purchases not only makes business sense, but it is also an opportunity to reestablish a world order where our banking partners participate at equal measure to the economy and restore an equilibrium to our societies.
