The Christian Lanng Interview: Calculating Supplier Financing Costs, a Tradeshift Update, and More
The first installment of our discussion with Tradeshift’s Christian Lanng covered a range of topics, including an expressed interest in buying OB10 (at his price) and more. The second part of the interview series explored the Capital8 and Tradeshift relationship and supplier financing model in more detail. The fireworks continue in this last installment of our discussion with Christian (see also our response to Christian’s statements as well based on the first interview in the series).
Spend Matters: How do Tradeshift and CapitalAid calculate financing rates for early payment?
Christian Lanng: Each offer we make is specific to an individual supplier. It is based on the credit data we’re using and other data; suppliers have the option to share their transactional and related data to lower their financing costs. For example, the app might request the ability to “access the following data” such as PO or invoice information, which will then vary the rates. It is an on-the-fly real-time rate.
There are multiple components to the algorithm. The first is the data I just mentioned that you have as a supplier. With Tradeshift, companies own their own data, including approval notes, workflow, etc., but you can voluntarily share that with applications that can give you value in return, such as CapitalAid. For example, whenever someone approves an invoice on the buyer side, it goes back into the platform on a signed XML basis and is delivered to the supplier’s account. We have this and other data –invoice data, PO data, logistics messages, etc. The suppliers can opt in to share that data with the CapitalAid app, which means there is a set of proprietary business documents that contribute to the algorithm.
There is also a second part to the algorithm, which is what we call environmental data—all proprietary Tradeshift data that is only used to calculate a credit score. This includes activity patterns and amount of interaction. It’s big scale data and looks for fraud and fake transactions. We think this is the core of what makes us different to include both sides in building credit risk.
Spend Matters: How much will suppliers pay?
Christian Lanng: We have done pilots already with CapitalAid and have found that the algorithm generates highly competitive rates – often 30% to 50% cheaper than other sources of capital for that segment. In essence, this is about disrupting mainstream financing. The big business case is to replace bank lending for this segment.
With p-cards, when you calculate the cost of a card in APR, it can often be 40% or higher. When we say we want to offer something that much cheaper, we mean it.
Spend Matters: Do you think financing will drive overall uptake of the Tradeshift platform among SMBs on a proactive basis?
Christian Lanng: Right now we’re seeing the highest growth rates of SMEs joining Tradeshift ever. More than 3,000 suppliers are joining every week through our on-boarding efforts. The way you can view it is that we’re one of the fastest growing platforms and that anything that increases value for supplier can accelerate the growth.
This goes back to whole point earlier in our discussion around why others will do this. People have been thinking about how they can extract value from the supplier and give it to the buyer. The market and our competitors focus on the larger suppliers. But if you’re serious about financing, you need to flip this around. What supplier value can we deliver? How do we avoid only getting the largest suppliers to adopt financing? This is the transition of the model.
Spend Matters: What is going on at Tradeshift in general? Are there new customers?
Christian Lanng: We have new customers but we can’t mention names. Spend Matters will hear about these wins as soon as we can talk, and the value proposition for our new customers fits with what we discussed. In fact the CapitalAid financing deal was closed on the back of some of these recent customer wins.
My big comment for today is to remember that companies have been shaping the whole market focused on buyer value. Flipping this to the supplier changes things. It requires a platform approach and massive analytics. There is value in new services that others can provide over networks, such as price benchmarking, but you must remember this is a one-sided approach.
The question is how you balance the value for suppliers. Companies like OB10 have been 100% dependent on forced roll-outs from the supply chain for revenue. As a supplier, you have been treated as a cash cow. So how credible is OB10 going to be when they suddenly say to the supplier, “Ah we got it wrong, sorry that we treated you bad all these years, do you want some financing?” I think it is a jump for suppliers to make the leap, given this value differential. The key is getting suppliers to believe in the value you offer.
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