A Major Game-Changing Force is Taking Shape: P2P + Trade Financing

- April 17, 2014 2:29 AM
Categories: P2P, Trade Financing | Tags:

Yesterday we published a Spend Matters PRO post titled: Will Trade Financing Bring About More Change to Banks or ERPs? The post explains why existing banks, third-party lenders, ERPs, and software companies should be scared about the coming storm of trade financing and P2P – and what they can do about it. This is a market that I personally believe – I don’t necessarily speak for my colleagues David Gustin and Pierre Mitchell here – is about to explode in the next 12-18 months as leaders among technology providers, card companies, and banks begin to introduce new products and new liquidity into a market that today is largely not intermediated.

The existing receivables and payables financing market consists of a range of products, including p-cards (which come in many flavors), approved trade payable finance (reverse factoring), discounting, letters of credit, receivables purchase, factoring, discount bills of exchange, VMI, distributor financing—just to name a select group of vehicles. Our sister site Trade Financing Matters estimates this is currently a ~$7.5 trillion annual sector, only 12 percent of which is intermediated by banks and other third parties. The rest sits on the balance sheets of buyers and suppliers. But both intermediated and non-intermediated elements may face material disruption and opportunity.

To understand why, it becomes critical to look at increasing investments in e-invoicing and supplier networks by companies as well as understand how emerging (and updated) trade financing products can create significant benefits for treasury, AP, procurement, etc. A range of these new solutions incorporate complete e-invoicing capabilities (either as part of their solution or through integration/partnership). Taulia is a great example of this. The company doesn’t even market e-invoicing overtly, but rather includes it as a means to drive dynamic discounting through speeding up the AP approvals process.

Generally speaking, trade financing solutions, in order to be most effective and affordable, require the type of visibility into invoice approval status, line-level detail, and related data that only P2P, e-invoicing solutions, and networks can provide. This is why the entire market is beginning to converge at the intersection of both. I personally view e-invoicing as a gateway to broader enterprise visibility into all transactional data (non-EDI) with suppliers – which will allow not only new types of financing opportunities but also new supplier risk management approaches.

But for now, it’s worth staying grounded and coming up to speed on what matters – the basic intersections between the areas. While understanding it is key, it’s also important to develop a point of view and strategy. You can’t afford to procrastinate, so get smart on this topic now. Our recommended reading includes:

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