Trade financing is a broad-based term we can use to encompass a range of receivables financing and payables financing techniques. The difference between the 2 types is relatively simple: Vendors are in control with receivables financing program, and payables financing programs are buyer-led. There are a range of common areas of trade financing programs today outside of global trade-centric programs and products. These include: supply chain financing (i.e., an uncommitted credit facility, typically with companies at or near an investment-grade credit rating), dynamic discounting, reverse auctions and auction marketplaces, buyer-led invoice finance, p-cards, seller auctions, factoring and invoice finance. For further information and definitions of these programs, download the Spend Matters Perspective: Understanding How E-Invoicing Fits.
Category Archives: Trade Financing
On this Flashback Friday, we are looking back to another popular Ask the Expert webinar we held back in April on current trends in trade financing. Spend Matters’ Jason Busch and Trade Financing Matters’ David Gustin teamed up in Ask the Expert: The State of Trade Financing Technologies to provide an impressively detailed overview of what’s happening in the trade financing world and how these events are signaling a changing market – all in under 30 minutes. Check out the full recording of the webinar and tell us if you have seen these trends play out during the second half of 2015.
I have spoken at many conferences over the years, and people ask all the time what conferences to attend. The answer is always the same – it depends. A conference like Lendit can draw 2,500 people today, given the hysteria with all things fintech. Traditional lending conferences, however, struggle to get 1,000 at their annual events. I find some of the best conferences come when the material is focused and flows – they don’t try to cover the world. Instead, they come at it from a practitioner's point of view and minimize the number of consultants giving presentations.
The latter approach will be on display at Exchange Summit 2015, at which I’ve been invited to give one of the keynotes. Given the expectations and sophistication of the audience, the pressure will be on to deliver insights that matter.
Infor announced Tuesday it was acquiring GT Nexus for $675 million. The transaction is expected to close before the end of September, based on regulatory approval. Infor has a long history of financially-driven acquisitions that keep investors happy and deliver enough innovation to customers to keep them on their systems. But the GT Nexus deal appears to be something more. The worlds of ERP and global trade are so sufficiently different that to combine 2 companies serving these markets effectively will require a new approach and vision – or as CEO Charles Phillips labels it, “postmodern ERP.” Indeed it is.
Efficient accounts payable (A/P) automation provides options for the company’s CFO. Faster invoice approvals allow CFOs to make decisions on whom to offer early pay acceleration, how to use the company’s cash positions and whether outside sources of funding should be engaged. Early pay acceleration on approved invoices does not require a company to go through the process of securing a revolving credit facility or an additional line of credit at its bank. Programs can be done by any corporate – investment grade, non-rated or non-investment grade. In addition, early payment can be offered on all invoices approved, opening up broader procurement spend, not just invoices for suppliers that are approved and ready within the allotted time period.
For more information, check out the Trade Financing Matters research paper, “Accelerating Early Payment: Techniques and Approaches for Accelerating Cash in the Supply Chain.”
Companies have a range of suppliers, but they typically fall into 3 broad categories: critical, non-critical and core and important. While the world is more complex than the above segmentation, a typical Fortune 1000 company may have as many as 160,000 suppliers, of which 10,000 are for production and 150,000 are indirect. When considering early pay acceleration opportunities, these organizations need to consider a menu of solutions, including a variety of techniques we explore and further segment in the paper Accelerating Early Payment: Techniques and Approaches for Accelerating Cash in the Supply Chain.
David Gustin, executive editor of our sister site Trade Financing Matters, maintains that accelerating cash in the supply chain will lead to positive results. He isn’t alone, as the White House, UK and European public sectors also support such programs. So, now that we have that out of the way, we can focus on the specific options and benefits for both buying and supplying organizations involved. Accelerating Early Payment: Techniques and Approaches for Accelerating Cash in the Supply Chain is now available for FREE download. Get your copy today!
Beyond Transactional P2P: Exploring Buy-Side and Sell-Side Trade Financing Techniques For Supplier Early Payment
When it comes to the intersection of purchase-to-pay (P2P) and financing options, there is no shortage of available techniques to address early payment programs to suppliers. As David Gustin notes in the Trade Financing Matters research paper, Accelerating Early Payment: Techniques and Approaches for Accelerating Cash in the Supply Chain, these techniques can be generally segmented into buy-side and sell-side categories. Buy-side approaches suggested include: p-cards, dynamic discounting, static discounting and reverse factoring, commonly called supply chain finance. Further, “On the buy-side, large and mid-sized corporates want to optimize payment terms and maximize their working capital, while not punishing suppliers by making sure they have options to liquidate their receivables. Buy-side solutions require an approved invoice from the company to release cash.”
Many outside of accounts payable and procurement fail to realize that most companies have not standardized their payment terms to suppliers. Or as my colleague David Gustin, of Trade Financing Matters, notes in his paper, Accelerating Early Payment: Techniques and Approaches for Accelerating Cash in the Supply Chain, “For most large corporates, there are no standard payment terms. Their payment terms vary across divisions, jurisdictions and through acquisition. Over time, a large company may have more than 50 different terms.” This proliferation of terms has become often low-hanging savings fruit for consultants that come in and look to identify opportunities, even inside more sophisticated accounts payable and procurement organizations. But to fully understand this trade financing terrain, a bit of history and context is necessary.
The global powers don’t agree on a whole lot but they do agree on one thing: there are substantial benefits to accelerating cash in the supply chain. The US government, UK and European public sectors are all convinced that there are benefits, but what those benefits are exactly may not be well known. From our sister site Trade Financing Matters comes this new, FREE research download: Accelerating Early Payment: Techniques and Approaches for Accelerating Cash in the Supply Chain. David Gustin, executive editor, outlines the specific benefits of accelerating cash in the supply chain as well as current alternatives and the pros and cons of different models for buying and supplying entities. Get your copy today!
Supplier collaboration platform Tradeshift hasn't been well known for finance outside of accounts payable. It has offered dynamic discounting, to be sure, but the feature has been used by only a handful of clients. That approach is about to change, however, as explained in a breaking article on Trade Financing Matters. As of Tuesday, Tradeshift will partner with C2FO, giving it access to the financial technology company's working capital market as an internal app. It’s clever on the surface, analyst David Gustin and Xavier Olivera explain, but how will the partnership work in practice?
US-based supplier diversity programs often represent one of the true success stories of niche-based initiatives that can have real impact with limited budget and resources. Most programs at larger companies still only have a single or handful of dedicated resources and budgets – at best – for supporting technology and data enrichment to manage and track supplier credentials, and reporting pales in comparison to other procurement solution areas. Yet the quantification of program results, including those in which diversity improvement is mandatory in government supply chains, often speaks for itself. Might early payment programs, either by requirement or encouragement, be the next logical step to link to supplier diversity efforts?