For mid-sized companies striving to compete with multinational giants, Vertical SaaS has become a game-changer, helping them bridge the gap in their software needs. One of the key factors driving this shift is outbound payments—empowering even the smallest businesses to process payments in real time, leveling the playing field.
Vertical SaaS seamlessly integrates a range of essential functions, like payments, and tailors them to the unique language and regulations of each industry. By offering a suite of interconnected services designed specifically for one vertical, Vertical SaaS has become the go-to solutions for businesses looking to scale and thrive.
In a PaymentsJournal Podcast, Lori Breitzke, Head of U.S. Strategy at B4B Payments, and Hugh Thomas, Lead Analyst of Commercial Payments at Javelin Strategy & Research, discussed the rapid growth of Vertical SaaS and the many benefits these programs are bringing to medium-sized businesses—particularly in the area of payments.
The Evolution of the Solution
Vertical SaaS has taken off in recent years as companies have realized that vertical selling is more effective than horizontal selling. Vertical SaaS offers finance, workflow management, workforce management, and payment services—streamlining operations for its clients, boosting their profitability, and helping them become stronger, more efficient organizations.
Initially, with early players like SAP and Oracle, these solutions were largely one-size-fits-all. They essentially delivered a “relational database in a box” to large corporations, leaving it up to the tech teams to figure out what needed to be measured, how to measure it, and what reports to generate.
As the market evolved and everything shifted online, it became easier to offer out-of-the-box, specialized solutions. This shift was driven in part by the fact that different industries have vastly different software needs. For example, the metrics an accounting firm tracks are very different from those of oil and gas company or a manufacturer. Modern solutions are better equipped to handle industry-specific complexities—like presorting requirements—that not only vary widely across sectors but are also becoming more intricate by the day.
“Vertical SaaS companies are speaking in the language of that vertical,” said Breitzke. “Oil and gas is going to speak differently from healthcare. By using those terms and using that language, it’s making for a much better user experience.”
Making Payments Faster
Take, for example, companies in the construction industry, which face challenges unique to their field. Managing payments to multiple subcontractors and suppliers often requires waiting on invoice approvals, leading to delays and operational slowdowns. Relying on checks or manual invoicing further slows disbursements. As a result, contractors wait an average of 54 days to get paid, with 83% resorting to liens due to these delays.
“We’re still seeing a lot of checks and a lot of ACH,” said Breitzke. “The numbers from NACHA on same-day ACH are going through the roof because people really need their money now. Automating payments and getting away from those traditional payment methods will help suppliers get paid faster. Certain suppliers will give discounts to businesses if they get paid faster, so that’s going to improve their cash flow as well.”
“If you’re waiting that long to get paid, your credit could get bad,” she said. “You’re missing out on making other payments that you need to make because you don’t have that cash flow. Embedding outbound payments is one of the critical features of a Vertical SaaS platform, reducing the administrative workload.”
Driving Toward More Efficient Payments
One key goal for Vertical SaaS is to squeeze as much non-productive capital out of the flows as possible. A check in the payment flow could result in a one- to three-day delay between invoice, receipt and approval—and when the actual payment finally lands in the hands of the suppliers. Whenever companies can move away from these slower payment processes, suppliers stand to benefit.
Checks are an increasingly antiquated system, with use cases dwindling by the day. The more a system can be built to anticipate the sunsetting of checks, the better off the process will be.
Globally, there’s a shift from a regulatory perspective toward reducing slack in the payments space. In particular, governments are looking to curb balance sheet building by large buyers at the expense of small suppliers. While regulatory mandates around specific payment timeline have not yet been introduced, there have been moves aimed at accelerating the system. This includes a push toward real-time payments, improved reporting, and greater transparency—allowing suppliers to highlight when certain buyers are consistently slower to pay.
The Efficiency of the Economy
Small businesses may be the backbone of the U.S. economy, but they’re often strapped when it comes to working capital. Whenever there’s an opportunity to shift more payment responsibility from large buyers to their small suppliers, it’s a net positive for the economy.
The emergence of the gig economy has also brought solutions like this to the forefront. A business may have a large but atomized base of small suppliers to pay, and they want to settle those payments as quickly as possible. The ability to push a payment through an option like a virtual card solution—as soon as goods or services are rendered—is almost a must in the gig economy.
“You want to be looking for a partner who understands the space in terms of ability to write credit for it and to monitor and manage risk such that they are making sufficient risk-adjusted returns on capital as a bank,” said Thomas. “Expertise in the space is absolutely key from a risk writing perspective, but also from a process perspective too. Having your financial partner understand the unique process needs is absolutely key in succeeding with something like this.”
Compliance is another critical factor, especially in highly regulated industries like oil and gas or healthcare. It’s crucial to receive proper reports confirming that the partner company is compliant and has appropriate anti-money laundering controls in place.
The true strength of Vertical SaaS is its ability to accommodate all of these industry-specific challenges by connecting disparate but related concerns—like compliance and payments—under one solution.
“That’s something that I would recommend companies look at when they’re looking for a partner,” said Breitzke. “They’ve got their own vertical industry compliance needs to worry about, so they don’t want to have to deal with that. Let us worry about those payment compliant things.”
The post From Underdogs to Industry Leaders: How Vertical SaaS Powers Mid-Sized Firms appeared first on PaymentsJournal.
