Author Archives: David Gustin



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.

Addressing S2P Platform Misconceptions Around Early Pay Programs

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.

Few source-to-pay platforms, payment processors or other networks have been able to develop early pay dynamic discounting management (DDM) or supply chain finance solutions that have added significant revenue to their enterprises. (See Why Platforms Need to Monetize Their Supplier Ecosystem.)

This comes at a time when these platforms are building new capabilities to boost revenues, including providing supplier invoice aggregation services; adding payment functionality; and helping clients migrate to cloud solutions.

From my conversations with many S2P platform vendors and payment processors, I hear three buckets of objections:

How Fintechs Can Use Non-Banks for 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.

In my last post, Many Fintechs Still Rely on Bring-Your-Own-Bank Strategy for Supply Chain Finance, I discussed how source-to-pay platforms and other cloud software providers still rely on their clients’ house banks for supply chain finance and why that might not be the wisest strategy given the times. So if you are a Fintech and want to offer supply chain finance, what are your options beyond a house bank strategy?

Many Fintechs Still Rely on Bring-Your-Own-Bank Strategy for Supply Chain Finance

Today, banks are by far the dominant player in providing supply chain finance, and do so in four ways. And many Fintechs that offer source-to-pay (S2P) and other supply chain collaboration solutions still have a strategy of using their clients’ house banks for supply chain finance. While it makes things easy if the customer can bring their own bank, it does not come without risk.

Has Off-Platform Lending’s Time Finally Arrived?

Now, digital B2B lenders can use fast data to scour thousands of individual data points — to instantly create a dynamic credit limit for companies that work on a particular supplier portal but only have a small percentage of receivables running through it. By having an off-platform model, this company can fund as many invoices as they want until they reach their credit limit. Virtually every supplier can be funded — only those in bankruptcy or on government watch lists are ineligible. This new form of B2B lending marries two core competencies.

Ad Hoc Working Capital and the Diversification of Liquidity

Toyota supply chain

When it comes to working capital and liquidity today, there are more options than just black. Almost all companies have some form of permanent capital to fund their business operations. Even the smallest companies typically have an overdraft facility or business line of credit with their bank. Larger companies are serviced by an array of conventional (banks, factors, ABL) and non-conventional (asset managers, insurers, specialty finance) financial firms. Until recently, however, the idea of ad hoc working capital to supplement more permanent forms was not a reality, since the combination of technologies such as e-invoicing, dynamic discounting, API integration and supplier portals were being developed along with third-party sources of capital. But through rapid B2B digitization and more widespread deployment of purchase-to-pay and supply chain collaboration platforms, companies now interact with their buyer-supplier ecosystems in new ways that enable and simplify ad hoc working capital.

How the Contagion Effect Could Blow Up Network Finance

In the real world, you plan for an event and it works out for a while. Then things fall apart. So you react and plan more — hoping to stop the problem from creating a contagion effect.

And here you are, thinking that you built this nice network finance model to finance your suppliers not just on approved invoices, but invoices that have been issued, or even more upstream, purchase orders that have been issued. And things have been working smoothly for a couple of quarters, or maybe for even a year or two.

But then it happens. More things fall apart.

The Blurring of Supply Chain Finance Definitions

I often get this question about how factoring and supply chain finance differ from traditional invoice finance. And the real answer is its very murky. There is certainly a blurring between invoice finance, invoice discounting, factoring, supply chain finance and asset-based lending.

By whatever name you want to call it, what really matters is what usury laws are governed by the lending technique and how bankruptcy court will interpret the structure (loan, asset purchase) and what the state or legal jurisdiction laws are in relation to the technique. Definitions are fine to help educate and illustrate, but they are meaningless when it comes to judges and investors.

4 Traps when applying Artificial Intelligence to B2B Lending

The crowdsourcing concept called the “wisdom of the crowd” is where a thousand non-experts will make better decisions than the most sophisticated experts in any field. Yet humans are subject to biases in their decision-making. These biases can bleed into the artificial intelligence algorithms we design to try to make us more efficient and effective. Read about the four that we should recognize.