By the Books... A Not Boring Sponsored Deep Dive
Really? Payers agree to pay 2.9% for each ACH transaction instead of $0.3-$0.6 per transaction which is the market price for ACH? For how long...?
I have been using Melio for the past couple months for a few businesses. Their payment speed is very slow if you do not agree to pay the $9 per ACH for one day payments. Currently, If you schedule an ACH payment to a vendor on a Friday, Melio takes the money out of your account on Monday and the earliest they deliver the funds to the vendor is the following Thursday. Part of the reason for using electronic payments is to reduce the payment time, but in Melio's case, I could mail a paper check as fast as their normal processing which has been frustrating. They also don't currently have a method to pay a partial invoice which they need to fix. I called and they said partial pay is coming soon.
Why do you think accounts payables have received more traction than account receivables? Most of the account receivables are net 30 which causes a lot of cashflow issues. Is it because they don't have a credit solution yet?
Packy, great writeup! Curious on your thoughts on their business model. Their pricing strategy is very counter intuitive (or counter positioning). "Everyone" in the industry attacking the AP side makes money on interchange (which forces everyone to push credit card payment type and issue cards) and historically has been the case that the payee is the one paying for the interchange. I understand the logic that you´ll have happy suppliers if it´s free for them to receive credit card payments. Any thoughts on where will monetization come from?
Very informative and interesting. I couldn't understand the complete mechanics of the business though- if the idea is to lower the cash conversion cycles by taking the risk in making the payments on businesses behalf, how exactly are they making profits?Wouldn't Melio's cash outflow always be higher to what they expect to receive back from the vendor/business owner?
Great article, as usual. I do think the way you've spelled out extending DPO is backwards though: "Sending payments in one day instead of five means that you can keep cash in your bank account for four extra days." My wife can attest, I've been wrong many times :-) but it seems like it would be sending it in day 5 would allow you to keep your cash longer. I assume Melio is using a virtual credit card to pay those suppliers, which actually can extend DPO by more than 5 days, depending on the payment terms of course.