Author Archives: David Gustin



Large Companies Lack Cash to Fund Their Supply Chains

procurement

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

The popular opinion has been that many large American companies are flush with cash. In fact, surveys from some reputable institutions support this view. The AFP’s corporate cash survey found during the second quarter of 2019, U.S. businesses continued to build their cash and short-term investment holdings. This is intuitively supported by events like the corporate tax cut last year.

But this narrative is highly misleading.

The Fallacy of Non-Recourse Invoice Finance

In life it is important to distinguish between marketing and reality. When it comes to invoice finance, one marketing myth that has persisted is that non-recourse invoice finance shifts payment risk from seller to funder. Unfortunately, non-recourse factoring is one of the most misunderstood subjects in commercial lending. As a result, companies undertaking some form of invoice finance, receivable finance or factoring tend to have the wrong expectation about this product, potentially incurring unnecessary costs and not truly understanding the credit-risk relationship.

Blockchain and Digital Invoice Finance — What’s Missing?

Similar to an idea in the movie "Inception," blockchain has been imprinted on our brains as the solution for just about everything. But recently, a number of articles have taken a negative perspective on blockchain. Now I for one am never about technology for technology’s sake. But let’s not throw the baby out with the bathwater. Distributed ledger technology really started ramping up only about 36 months ago. Considering that Amazon was still only selling books online after its first two years, why does blockchain have to change the world so quickly?

Deferred Buyer Payment Solutions: The Search for the Holy Grail

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

Most discussions about early payment solutions focus on buyer-centric models, ones that scale by bringing technology, managed services and perhaps some underwriting to offer supplier finance. This is a big opportunity that top providers have been going after for years, of course, and the potential market is huge. But the flip side of the coin, deferred payment solutions, where sellers are paid early (or based on their standard terms) and small buyers can extend those terms outward to 90 or 180 days, is a less understood market — both in terms of potential, technologies and the type of underwriting to manage losses.

PPC: On Late Payment — Regulate, Shame or Just Deal with It?

There was some recent shaming of some very large companies by the UK government that did not comply with the Prompt Payment Code (PPC). Seventeen large companies, including heavyweights such as Vodafone, Rolls Royce, SSE and British Sugar, were suspended pending promises to fall into line.

Short of legislation, shame can be a tool. But when we think of the damage that large corporates have done far beyond late payment (i.e., Purdue Pharma & the opioid crisis, Lehmans & the Financial crisis, etc.) without paying any price, you have to wonder how effective shaming will be.

Is There a Tech Solution for Supplier Portal Proliferation?

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

When we look at source-to-pay solutions, we tend to look at it from one side, that is, how this is going to improve the accounts payable department, reduce cost, be more efficient and improve supplier collaboration.

But then I hear quotes like this ...

“Our customers [suppliers] hate their client’s [having multiple] e-invoicing providers. They get the calls from Coke or Kraft, who say, “Hey, you can now send invoices to us through our portal (in fact, that’s the new policy if you want to get paid)." But if you [suppliers] have 20,000 customers, you are busy with debt collection, especially now. And now you have to go from your billing file and pull the 200 invoices manually that need to go to an array of e-invoice providers and get them into a portal because your customer requires it.”

Increasingly, small businesses are getting overwhelmed with too many portals to log into for invoicing.

Goldilocks, Capital Structure and Supply Chain Finance

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

Ahhh. This porridge is just right.”

— from “Goldilocks and the Three Bears”

The Goldilocks principle is named by analogy to the children's story “The Three Bears,” in which finding the right temperature for porridge took some sampling.

So how do you make sure the porridge is just right if you are today’s middle market treasurer and need to balance liquidity, access to capital (and if rated, a quality rating), and ensuring the right amount of cash?

Most middle market companies are not flush with cash. In fact, when thinking of capital structure, there are many things that keep the CFO/treasurer up at night.

What’s the Big Deal Behind Vodafone’s Supply Chain Finance Program?

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

In a recent TXF article on Vodafone's supply chain finance program and its early pay program, Oliver Gordon, features editor, said: “Vodafone has been using complex financial engineering devised by GAM and Greensill to enable it to profit from and invest in its own SCF offerings and bolster its DPO (days payable outstanding).”

Personally, I have no problem with a company wanting to use its cash to self-fund an early payment program for their suppliers in exchange for discounts. Many large corporates implement some form of dynamic discounting that enables their long tail suppliers, and specific segments — diversity suppliers, choice suppliers, small businesses — access to early payment once an invoice has been approved. In fact, this practice has been going on for decades and now technology allows companies to systematize it and offer it to select suppliers, different supplier segments or all suppliers.

I also have no problem if a company wants to use this construct to invest in their own payables or some other company’s payables. But this does bring up three important questions.

Why Payment Companies are Missing an Opportunity with Early Pay (Part 2)

Small Business Credit

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

As we pointed out in our last post, payment companies are looking to convert paper checks to cards, and this is drawing interest from many firms, from private equity investing into payment companies to acquisitions (e.g., Fleetcor acquiring Nvoicepay, Visa buying Earthport). The key weapon of payment companies is to leverage interchange fees to entice their clients (buyers) through rebates and extended terms to provide an early pay option for suppliers, typically with a discount from the invoice of 2% to 3%. Yet there are several reasons why a “card only” strategy from payment companies is suboptimal.

Why Payment Companies are Missing an Opportunity with Early Pay

Small Business Credit

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

Facilitating B2B payments is certainly the “in” thing these days as witnessed by some of the more recent acquisitions — see Jason Busch’s Spend Matters’ post Another Payment Provider Gets Acquired.

Why all the excitement? The market sees opportunities around three areas — interchange fees, cross border payments and FX.

For many payment companies that deliver solutions to automate payments and accounts payable, their core value proposition, infrastructure and business model are built around converting their clients’ suppliers to card payment.

Why Corporates Cant Fund Early Pay Programs (Dynamic Discounting + SCF)

We hear so much about how flush American companies are with cash. Pundits are out there talking about how much cash corporate America has. But this story is highly misleading. Five percent of S&P 500 companies hold more than half the overall cash; the other 95% of corporations have cash-to-debt levels that are the lowest in data going back to 2004, according to Wells Fargo research. We know who those 5% are — they are the GAFA companies: Google, Amazon, Facebook and Apple. Corporate debt is exploding, and can be more addictive than crack or opioids. Debt is fine when things are going well, but when revenue stalls, bad things can happen.