Spend Matters welcomes this article originally published on our sister site Trade Financing Matters.
Basware recently announced its financial offering, a suite of supply chain finance capabilities that are both buyer and seller driven. One is called Basware Factor, and the company is partnering with Arrowgrass Capital Partners, a $5 billion London hedge fund, to develop an electronic invoicing service in the latest move to capture business credit that has stayed on corporates balance sheets in the form of payment terms.
Arrowgrass, spun out of Deutsche Bank in 2008, is one of the largest post-crisis hedge funds.
What makes this financial product so interesting is that it is true factoring, which works with sellers and does not require a buyer-approved invoice unlike many of the other models that offer early pay, dynamic discounting, or reverse auction solutions. Factoring allows businesses to sell their unpaid invoices at a discount in order to meet cash flow needs.
While the project is at a preliminary stage and plans to launch next year, Basware Factoring would in theory allow Arrowgrass to profit from a business historically dominated by commercial banks. Having access to Basware's extensive network data allows Arrowgrass to model buyers to determine their risk position based on network data, all in real-time.
A non-confirmed invoice essentially means more risk. What does a non-confirmed program need to protect against?
- The first risk is there will be variations in the payment date (i.e. the payment is not made on the value date).
- ArrowGrass will need a way to manage diluted payments by the buyer, either contractual dilution known at the time of invoicing (volume rebates, customer credits) or non contractual (short shipments, pricing errors, etc.).
- ArrowGrass will need to assess if these invoices from the seller are fraudulent.
In addition to Basware, Arrowgrass made a £15 million investment in Zopa, one of Europe’s largest peer-to-peer loan platforms. The alternative lending market continues to grow, and as Jason has made reference, the comet may be about to hit bank factoring and lending.
The non-confirmed invoice finance market is a tougher code to crack compared to buyer approved invoice finance, and with Basware Factor, we will be closely watching the success.
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