The Myth of Solved SMB Financial Management: Why AP/AR Remains an Unsolved Problem


The Myth of Solved SMB Financial Management: Why AP/AR Remains an Unsolved Problem

The SMB Financial Management Struggle

It’s a common misconception that SMB financial management is completely solved. However, SMBs actually face significant financial challenges, especially when it comes to managing their finances effectively.

These challenges can have a significant impact on their cash flow and overall productivity. One of the most common issues is late payments from customers, with a staggering 86% of SMBs experiencing delays in receiving payments for the invoices they send out. This delay in revenue can severely disrupt their cash flow and hinder their ability to manage finances smoothly.

Another pain point for SMBs in financial management is the high cost associated with processing accounts payable. The cost of processing a single incoming invoice can range from $5 to $15, which is quite steep especially for SMBs. This financial burden can quickly add up, straining their already limited resources.

Compounding these issues is the fact that SMBs often rely on multiple disconnected software tools to handle critical financial workflows such as accounts receivable, accounts payable, expense management, cash flow analysis, and accounting. This fragmentation not only leads to lost productivity as they switch between different platforms but also hampers their ability to gain a comprehensive view of their financial health.

The Need for Streamlined SMB Financial Workflows

Illustration of a B2B platform streamlining financial workflows for SMBs through embedded finance, highlighting benefits like reduced fragmentation and enhanced productivity.
Fragmented financial processes create major friction and inefficiencies for SMBs. In fact, 76.5% of SMBs prefer centralized finance workflows over juggling separate tools. 

Switching between multiple tools results in lost time, errors, and an incomplete view of financial standing. Centralizing these workflows in a unified system streamlines processes, reduces costs, and provides real-time insights into cash positions. This eliminates the hassle of maintaining multiple subscriptions, learning different user interfaces, and manually consolidating data.

Streamlining Financial Workflow for SMBs: A golden opportunity for B2B platforms

Embedded finance offers a solution to the fragmented financial landscape for SMBs by integrating essential financial tools directly into platforms they already use. This consolidation eliminates the need for multiple applications, providing SMBs with a streamlined way to manage finances.

By bringing financial capabilities to where SMBs already work, embedded finance empowers them to take control of their financial health, streamline operations, and gain a comprehensive understanding of their cash flow and financial standing – all within the context of their existing workflows. SMBs can access robust financial features and functionalities without ever leaving the familiar environment of the platform they rely on, ensuring that managing finances becomes an intuitive part of their daily operations.

Why embed AP/AR into your platforms?

Embedding AP/AR into your B2B platform is crucial for staying competitive and unlocking new revenue streams in SMB financial management. Integrating financial workflows like accounts receivable and payable enhances customer retention by making your platform essential for daily operations, increasing user engagement, and reducing churn. Enabling SMBs’ payment flows allows you to tap into lucrative payment revenue streams, earning a cut from invoice payments and supplier settlements. Additionally, offering value-added services like cash flow forecasting and invoice financing can multiply your revenue per customer.

Toast’s evolution from a point-of-sale system to a comprehensive restaurant management platform by embedding payment and financial services significantly boosted its revenue and customer retention. Without such integrations, competitors offering all-in-one solutions will outpace you in the evolving SMB financial management market.

SBM financial Management

Unlocking New Revenue Streams

With embedded finance, platforms can monetize SMB payment flows, especially in accounts payable where businesses pay suppliers. There’s also revenue potential in facilitating invoice payments and offering financial products like cash advances or BNPL solutions for accounts payable. Centralizing financial data allows for cross-selling services like payroll, expense management, and cash flow analytics, making your platform the go-to destination for SMB financial management needs.

The Stickiness Factor of Embedded Finance in SMB Financial Management

Integrating financial workflows enhances platform stickiness, reducing churn by making it difficult for SMBs to switch. Finance tools are mission-critical, and disruption from switching is highly undesirable. These tools see heavy usage across multiple teams, embedding the platform deeper into the organization and driving long-term engagement and customer lifetime value.

The bottom line? By handling such vital, frequently used financial workflows, platforms foster dependence and habitual usage. This translates into impressive retention metrics and compounding customer lifetime value over time. Embedded finance is a potent defense against churn in SMB financial management.

Build vs Buy: The Costly Road of In-House Development

Building SMB financial management tools in-house is an expensive, lengthy, and resource-intensive undertaking that requires specialized fintech expertise many platforms lack. The upfront costs of assembling a dedicated engineering team, coupled with an estimated multi-year timeline, make this path prohibitive for most companies. Even if the resources are available, maintaining and continually enhancing the financial tools poses an ongoing operational burden.

Many companies underestimate the complexity, leading to protracted development timelines and significant costs. This “rabbit hole” of development can divert resources from core product differentiation, delaying time-to-market indefinitely. What was initially scoped as a 6-month project can quickly spiral into years of unanticipated work as new requirements and hurdles emerge. This “rabbit hole” effect has caused many well-intended in-house projects to become quagmires that drain resources and delay time-to-market indefinitely.

Invoice is overdue