Here at Spend Matters and Trade Financing Matters, we spend quite a bit of time exploring the intersection of e-invoicing, supplier networks, and trade financing (inclusive of receivables financing and payables financing). David Gustin (Managing Director of Trade Financing Matters) and I have already spent quite a bit of time this year on the road talking about this topic with practitioner organizations (internal trading/financing arms of organizations, procurement, AP and treasury), banks, private equity firms, and software shops.
It would seem everyone has more questions than answers regarding the topic and wants expert insight that considers both the financial (bank and non-bank) and technology intersections. Fortunately, we’re not the only ones exploring and advising on the market. In his recently released 2014 e-invoicing report, Billentis’s Bruno Koch wrote: “There is no doubt that Trade Finance / SCF will become increasingly important during economically challenging times. Considering a survey by Demica, top banks expect annual SCF growth rates of between 20% and 30% in 2015. This could slow down towards the end of the decade but is still estimated to be more than 10% by 2020.”
Bruno further notes that “e-invoicing has the potential to become a catalyst for a strong growth of SCF. The author expects that the way to enroll successful and scalable SCF solutions is to fully embed it into a single e-invoicing platform that can then handle all information exchanged between companies and financial institutions electronically.”
If we were to debate this topic, David and I would agree with Bruno wholeheartedly, but we’d point out that e-invoicing is just a piece of the bigger trade financing puzzle (a market that is still largely un-intermediated with debits and credits sitting on the balance sheets of those companies engaged in trade). Beyond e-invoicing, it’s critical to explore the intersections with broader purchase-to-pay (P2P), direct materials procurement, services procurement, and related systems – not to mention understanding all of the related capabilities and requirements of supplier on-boarding (e.g., know your customer – KYC) and management. And of course we can’t forget about the legal frameworks necessary to securitize payment obligations and have third-parties invest in them just as they would commercial paper – which looks quite similar (although is lower yielding) than trade financing security equivalents.