Unlocking B2B Small Business Growth, By Speeding Up The Payment Process

Lara Hodgson and Stacey Abrams—yes, the politician and activist—founded NowAccount to make it easier for small businesses to access financing. By providing a credit card-like system that pays sellers quickly (minus a one-time 3.5% fee), NowAccount allows small businesses to grow without being a “free bank” for their customers. There is a $40 billion unmet demand for financing for people of color alone. This financing option has the potential to unlock substantial economic growth.

Understanding Small Businesses’ Payment Problems First Hand

Hodgson and Abrams met at a leadership conference in Atlanta. They teamed up in 2010. Since then, they have created three companies. The second business—Nourish, which sold a patented line of spill-proof purified water for infants and toddlers—gave the duo a bird’s eye view of the challenges small businesses face when financing growth. Many of their customers don’t pay their invoices in 30 days, 60, or even 90, making it near impossible for small businesses to meet payroll and pay suppliers.

“I joke that [some companies] treat 30 days net due as just a suggestion,” said Hodgson. The pair had a large order from Whole Foods for which the 30-day net due obligation had long passed. More orders were coming in, but they didn’t have the cash reserves to meet payroll and pay suppliers without payment. As hard as they tried, they couldn’t stitch together financing and couldn’t accept the order.

After Hodgson dropped her son at daycare, she put her head on the steering wheel of her car in the parking lot and cried. “I thought I’d ruined everything,” she thought. “I have to turn down orders, which is not what you worry about when you start a business.”

When she told one of her suppliers about the problem, he said, “Everyone has that problem.” He listed her financing options, including a line of credit and factoring.

Hodgson and Abams said, “Timeout, what do you mean, everyone has this problem?” Why are small businesses forced to be “the free bank” to their customers? “If you think about it, the largest lender in the United States is not a financial institution,” said Hodgson. “It’s collectively small businesses because every time you send an invoice and wait to get paid, you’re extending a free loan to your customers.”

With their new insight into small business financing, they reviewed their options. All options required liabilities on their balance sheet. They found a local bank that charged high interest and a factor—a company that purchases unpaid invoices at a discount, paying about 80% to 90% of the invoice, plus high fees. Unfortunately, after being approved, the factor’s credit scoring model changed, leaving them without a source of financing, and they had to turn down the order and lose the opportunity it represented.

A Light Blub Moment Leads To A New Small Business Financing Option

While having lunch one day, they realized that retailers and restaurants didn’t have this problem. When their customers paid with a credit card, these small businesses received payment—usually within 24 hours.

Why wasn’t there a credit card that worked for business-to-business? If there were one, Hodgson and Abrams could have paid their employees and suppliers and continued to grow. Whole Foods would now owe the financing provider, not them.

Hodgson and Abrams decided to launch the first payment system to help small businesses, such as marketing firms and manufacturers whose clients are corporations or government agencies. The NowAccount pays the small business quickly minus a one-time 3.5% fee. It feels like your customer handed you a Mastercard or Visa, even though they did not. The seller gets paid immediately, and the purchaser pays on their terms, even if it is six months later. Corporations and government agencies don’t rely on credit card payments regularly because they get assessed interest and penalties once they go past the due date.

The NowAccount frees small businesses from being the free bank for the U.S. economy and allows the businesses to grow. “If you study what happened on the retail side, when the credit card came out, and retailers no longer had to wait to get paid, retailers grew exponentially, and the economy grew,” said Hodgson. She believes this credit card-like system for small B2B) transactions will unleash tremendous economic growth.

The pair launched NowAccount by cobbling together small amounts of capital. “We couldn’t tell everybody about it,” said Hodgson. They didn’t have the cash to pay too many small business invoices. At this point, they were looking for proof of concept.

Once they started, they got proof of concept and sought more significant sources of capital. They grew a little bit more. It’s been a back-and-forth process. Grow the capital side, grow the client side, grow the capital side, grow the client side, and so on.

Then the pandemic happened. There was a lot of uncertainty about funding. Still, they persevered and worked through it. “In 2022, we had almost 2.5 times growth,” said Hodgson. On December 23, 2022, the NowAccount closed a $225 million facility led by Goldman Sachs. That’s the first time they unleashed the capital side. Now they can turn their attention in 2023 to serving exponentially more businesses. So now, I’m back to scaling the client service side.

It’s taken a while for the companies that provide the capital facility to understand the issue related to the lack of access to capital that plagues small businesses. Most have never run a small business. “What happened was that solutions got created that treated small businesses as miniature large businesses,” said Hodgson. “I’m very excited that in the last several years, we’re seeing more innovative financing solutions grow for small businesses.

“Hopefully, we can finally level the playing field for small businesses,” Hodgson said.

How are you financing your small business?