E-Invoicing’s Growth and the Supply Chain Finance Opportunity — For Buyers and Suppliers

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The global invoice finance market is massive — and growing. Already topping $3 trillion worldwide, increased use of e-invoicing by companies and mandates for the technology by tax authorities are creating new opportunities for buyers and suppliers. What’s more, the rise of P2P and S2P systems has brought buyers and suppliers into closer collaboration than ever before, positioning supply chain finance to jump from a fraction of the invoice finance market to a dominant player in this evolving space.

To learn more about these trends and what solutions are available to procurement, suppliers and solution providers, we sat down with George Shapiro, CEO and chairman of The Interface Financial Group, to get his take on how the lending and invoice finance markets have changed over time, how suppliers are accessing capital today and how procurement’s increased awareness of early payment options is changing the invoice financing game for companies large and small.

1. Could you provide a brief history of IFG for Spend Matters readers?

The Interface Financial Group (IFG) was founded by John Sheehy in 1972 out of Canada. John, who was previously CEO of Peabody Engineering, knew the level of financial pressure under which contractors and subcontractors were operating. IFG introduced a new way of providing invoice finance service to small and medium-sized businesses by offering single or select invoice finance services. IFG entered the U.S. market in 1991 and today operates globally.

In 2013, IFG has introduced its invoice finance marketplace platform for institutional investors in major markets like the U.S., Canada, Australia, the U.K. and Ireland, and in 2014, we started building and introducing our digital supply chain finance (DSCF) service.

2. You’ve been around the receivables lending/factoring market for a long time. How has it changed?

The global invoice finance market is worth $3 trillion worldwide. In Continental Europe, the market is dominated by major banks, with over 90% of invoice finance services provided by banks. The U.K., U.S. and other markets enjoy a combination of banks and independent financial institution providers. Currently, the invoice finance market is in the beginning of the fundamental changes, due to the exponential growth of e-invoicing technology and adoption of the e-invoicing standards and protocols by major countries. This trend has launched new early payment solutions like dynamic discounting and digital supply chain finance. In general, the broad umbrella of what we call DSCF of digital supply chain finance (not just “approved trade payables financing” or classic SCF) is positioned to start taking over market shares of traditional invoice finance global market.

3. Why did you get into offering an integrated technology and capital solution that works with procure-to-pay and technology platform providers?

Not only is the global invoice finance market large, it is poised to grow rapidly — at 10% to 15% per year. At the same time, the accelerating adoption of e-invoicing technology, along with the increased use of supplier information management platforms, has created an opportunity to take supply chain finance from a miniscule portion of the total invoice finance market to a dominant funding mechanism in the near future. Thanks to the integration of e-invoicing, purchase-to-pay (P2P) and source-to-pay (S2P) systems with buyers and suppliers, dynamic discounting and third-party payment systems have become far superior to invoice financing services. The need for such an integrated technology and capital solution has thus become obvious, and we are now using our decades of experience to serve that need.

4. How are suppliers accessing capital today?

Long tail suppliers have a difficult time finding adequate funding. While the easiest way for small businesses to do this is to obtain MCA loans, this kind of funding is extremely expensive. Some suppliers could use factoring, ABL LOCs and invoice discounting. DSCF’s mission, however, is to provide a long tail suppliers with digital access to early payments, including those that may not qualified for any forms of financing.

5. Has the online lending market changed the way suppliers approach this process? What are the advantages of integrating early payment offerings with e-procurement, invoice-to-pay and P2P systems compared with these decoupled approaches?

There are some online lending providers like On-Deck and Kabbage, but this type of funding is also not available to all long tail suppliers. Our integrations with P2P/e-invoicing platforms allows us to provide fully digital "button-money" solutions for all suppliers. Supplier participation in the program is strictly voluntary, allowing them to access cash as they need it, rather than feeling compelled to use it to protect a customer relationship.

6. How has procurement's awareness about the benefits of offering early payment options (e.g., supply risk reduction) changed along with the market?

Procurement is still in the first inning in terms of general awareness of all the benefits. Many have been “pitched” classic SCF along with their CFO and other finance team members — really as a means of extending payment terms for larger suppliers while attempting to preserve supply relationships. Some have adopted it. But as we all know, these programs fail to reach the long tail of suppliers, even when successful. In the coming months, we are making it our mission at IFG to work with Spend Matters and others media/research firms to get the message out about the benefits of DSCF and early payment to procurement. Stay tuned!

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