Alex Lugosch doesn’t look or talk like a banker. It’s not surprising. He grew up in an entrepreneurial household and used to run a business-to-business (“B2B”) marketplace for the cycling industry. Nevertheless, as CEO and co-founder of Rumbleship, he’s become something of a banker in order to make life easier for B2B e-commerce sellers and their buyers. Recently, I spoke with Alex about how Rumbleship can help B2B sellers solve their accounts receivable management challenges.Learn About Rumbleship
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Dave Bayless: Alex, what problems does Rumbleship solve and for whom?
Alex Lugosch: One of the things about B2B e-commerce as we know it today—and I don’t really care if you’re using an ERP or Magento or any of the e-commerce platforms out there—it’s really when you get to the payment portion of the transaction. You’ve filled your cart. You’ve reviewed it. You’ve put in your address information or it’s saved, and then you go to pay for your items. There’s no good way to do that in B2B. Inventory purchasing is not supported in any effective manner by credit cards or PayPal.
Our system plugs in like a gateway, and it basically removes the need for a B2B supplier to do any kind of out-of-band invoicing. What I mean by that is sending a Bill.com, sending a paper invoice, doing any offline billing with respect to the inventory purchase. Literally, a buyer can check out, select the terms they want—net 30, pay now, net 60, whatever’s negotiated—immediately connect their bank account, and authorize the transaction. Then that supplier is paid in advance of the term or whenever it’s negotiated, and then that retailer is automatically charged and debited upon the day that they had selected. So it completely automates the invoicing process for B2B online transactions.
Dave: So tell me a little more how that works. I gather that there is a plug-in or an API that the seller connects to. How do the buyers get approved to participate in the program?
Alex: There is an open API that people do use and integrate against, and there are several plugins now. There’s one for WooCommerce, one for Miva, one for Tradegecko. Those are the easy integration points.
In terms of buyer onboarding, that happens in various ways. Typically, what will happen is a supplier says, “This is my buyer list.” They send us that in a CSV. We upload those buyers and approve them, so they can see the gateway. Only approved buyers can see the gateway.
As for new buyers, typically what happens is in B2B you have what’s called a dealer application or a wholesaler application. Those applications get ported over to us as they get filled out, and we add those buyers as well. It means that basically, a buyer does not have to set up a separate account to transact with us.
Dave: Without sharing your secret sauce, what are the features that distinguish Rumbleship’s approach versus other forms of managing B2B accounts receivable?
Alex: I think we’re a lot more than an accounts receivable product. We completely eliminate the need for accounts receivable from a supplier’s perspective because we always pay them, no matter what, on time, every time. So, when it comes to what makes us unique, we are the only checkout application like this that really handles everything end-to-end.
There are not separate credit apps. You’re not borrowing from a bank. There aren’t credit lines that need to be retired. It’s all integrated. That’s really the special part of this.
Dave: How do you get paid?
Alex: We get paid based on transaction fees that are charged to a supplier. They’re typically less expensive than credit card fees. They can be really inexpensive, and they’re customized based on that supplier’s needs. Some suppliers want to offer long terms; some suppliers want to offer short terms. Those are all custom options.
Dave: Are there any other set up fees or ongoing subscription service fees?
Alex: No, the only fee is on transactions. The plug-in is free. There are no termination fees, etc.
Dave: Tell me about your origin story. What prompted you to start Rumbleship?
Alex: Rumbleship was born out of necessity. My business partner in this company, Isaac (Sparling) and I, we had a B2B marketplace called Rumbleship, and it was built for the cycling industry, originally. You know, we had drop shippers basically. We had aggregated all these dropshipping brands to sell to retailers, and all these retailers were telling us, “We want terms, we want credit.” We had no way of doing that on behalf of our suppliers. So, over time, we ended up leaving that business and developing this product.
It works with distributors. It works with individual suppliers. It works with single-person businesses. Even small wholesale e-commerce suppliers can really compete with big e-commerce suppliers when it comes to offering terms to their buyers, which is a huge tool that they didn’t have before.
Dave: When you look out over the next couple of years, what are the trends you’re seeing driving the B2B e-commerce world that you’re really excited about?
Alex: I mean one of the things that I think is really critical about B2B in the future is, obviously, we’re moving away from a world of paper catalogs. If you’re a supplier who’s still sending paper catalogs, you should be nervous about that decision. The fact is, the people who are actually making purchasing decisions now at companies are people who grew up with the internet in their lives. They are used to online catalogs, they’re used to discovery. That is just the way commerce is going to go. B2B e-commerce is growing rapidly, I think it’s projected to be like $1.2 trillion by 2020. From our perspective, B2B e-commerce has not been complete, and now it’s complete. It’s just mirroring what B2C e-commerce has done.
Dave: Is there anything else that you’d like people to know about Rumbleship?
Alex: I’ll tell you sort of a personal story. My mom, for my entire life, has been an independent jewelry designer—a fine jeweler. She at one point sold to, I think, over 400 stores across the United States. My mom was a great jewelry designer but she did not become a jewelry designer because she wanted to be a banker for her customers when it came to her inventory. And I remember so many times the frustration she would face when people would slow pay or late pay or just not pay her at all for inventory.
It didn’t make or break her business. I mean, one thing I will say that suppliers say to me all the time, they say, “Well, I don’t have a receivables problem.” Nobody who’s in business has a receivables problem. If you did you probably wouldn’t be in business for very long.
What suppliers do have is a receivables management problem. It requires bookkeepers and you have to usually do it yourself when it comes to managing accounts receivable or accounts payable on either side of the equation.
And if you think about what the implications are with Rumbleship, it’s basically like, “Oh, okay.” This whole function of your business that you never wanted to do is billing, right? You just wanted to make things. You wanted to make the best product in your category. I don’t care if it’s furniture, I don’t care if it’s bicycles, I don’t care if it’s hardware, tools, supplies, I don’t care. That’s the part of your business that gets you up in the morning and gets you excited.
Nobody’s excited because they walk into the office and they’re like, “All right, today I am going to do accounts payable. Today I’m going to deal with my accounts receivable.” No one is excited about that and they shouldn’t be excited about that. That’s not why they got into this business, whatever business it is.
So, what I love about Rumbleship and what I will say to people is, “It’s for B2B suppliers that start today and have $0 in sales and it cascades up.” You can be a giant company that has $120 million in sales and you can still use this thing if you have a B2B store.
The Retailer Advantage
E-commerce technologies give manufacturers unprecedented options to sell directly to consumers. In many cases, though, specialty retailers continue to play important roles in manufacturers’ marketing channel strategies.
- Retailers can identify and address specific market segments and, in aggregate, help stimulate overall product demand.
- Retailers—unlike niche manufacturers—can offer consumers a broad range of complementary products. Such product curation adds value to the consumer buying experience and the marketing channel.
- Furthermore, the ability to offer multiple products over time increases the average value of a consumer, which means retailers can invest more in customer acquisition.
- Similarly, a wholesale or B2B buyer can represent a much higher customer lifetime value to a manufacturer than a B2C buyer—even though wholesale margins are usually much lower than retail margins.
The Accounts Receivable Management Problem
Offering payment terms to B2B buyers results in higher sales. There’s no free lunch, though. Managing accounts receivable—at least historically—has been a pain for B2B sellers. Granting terms means evaluating and underwriting buyers’ credit, sending (and re-sending) invoices, and collecting past due accounts. As Alex notes, “Nobody’s excited because they walk into the office and they’re like, ‘All right, today I’m going to do accounts payable. Today I’m going to deal with my accounts receivable.'”
Rumbleship is one of a new class of payments processing businesses that offers Credit Management as a Service (“CMaaS”) to technology-enabled B2B sellers. Rumbleship is to B2B as Visa or American Express are to B2C. For a transaction fee, Rumbleship will underwrite the risk of selling on terms to B2B buyers and automate the invoicing and payment process.
Rumbleship’s B2B Payment Process
The flow chart below represents my understanding of how Rumbleship intermediates B2B payments.
- The seller selects the payments terms it wishes to offer its B2B buyers.
- Buyers submit a trade credit application online, which is routed to Rumbleship for approval.
- Once approved, a buyer will be able to see and select the Rumbleship payment gateway when placing an order on the seller’s B2B e-commerce portal.
- Upon selecting terms (e.g. payment in 45 days) and placing an order, the buyer pre-authorizes an electronic funds transfer (“EFT”) for payment.
- When the order is fulfilled, Rumbleship will remit payment to the seller less its transaction fee.
- The EFT payment from the buyer to Rumbleship will be executed automatically. If the buyer defaults, it’s Rumbleship’s problem.
From the seller’s perspective, selling to a B2B buyer via Rumbleship is a lot like making a B2C sale via American Express. In other words, Rumbleship integrates credit underwriting, the flow of transaction information, and payments. The seller can focus on making and selling distinctive products.
Make it Easy to Buy
Amazon, more than anybody else, has demonstrated a powerful truth: making the buying experience easy is a competitive advantage. Manufacturers can make B2B buying easier with online catalogs, order processing automation, payment terms, and streamlined payment systems. Rumbleship aims to reduce the friction of B2B selling so sellers and buyers can devote their time and attention to their relative strengths: making great products and selling great products to consumers. Leaving the “banking” to others.