To understand how to most effectively, affordably and sustainably accelerate the flow of cash in the supply chain for all parties, understanding the history of the market itself is essential. An understanding of the structural changes that have taken place with purchase-to-pay (P2P) technologies in recent years, which stand to usher in a new era of early payment programs, is vital as well. My colleague David Gustin recently penned a paper, Accelerating Early Payment: Techniques and Approaches for Accelerating Cash in the Supply Chain, that provides a great overview of the topic for those just getting into it or looking to accelerate their knowledge of the different programs available from procurement and accounts payable perspectives. But even before exploring these options, it is important to understand the evolution of transactions between buyers and suppliers.
My colleague David Gustin recently penned a paper that summarizes many of the techniques to accelerate early payment in the supply chain. As he frames the argument, “Everyone – including the White House, UK and European public sectors – agrees there are significant benefits that come from accelerating cash in the supply chain.” Yet even while politicians and businesses can agree that the benefits of accelerating payments is real in terms of economic impact and supply chain stability, there are underlying challenges in the structural notion of what has led to the need to accelerate early payments.
David Brown, founder of both Oxygen Finance and Remitia, is passionate about getting payment in the hands of SMEs as fast as possible. In a recent blog post on the topic, David notes that, based on research he’s looked at in the UK, “£41 billion of payments to suppliers are considered late. We have not been able to confirm what late specifically means in practice, 30, 60, 90, 120 days etc., but what we do know is that out of this £41 billion in late supplier payments, £36 billion is owed to SMEs.” The implications of this are significant indeed.
Late last year, David Gustin penned probably the best white paper on the future of trade financing. In his analysis, David argues that there are 6 specific triggers for potential intermediated or early payment: signed contracts, the issuance of a purchase order (PO), materials ordered by suppliers, shipping status, invoice issuance and invoice approval. From a traditional indirect or even direct materials procurement scenario, these steps make complete sense as potential financing triggers, and they are certainly triggers for payment in the offline factoring world today. But if you open your mind a bit to other potential triggers in different areas and scenarios, the prospects become quite interesting indeed.
Yesterday, I covered a number of challenges around the issue of early payment solution provider proliferation and supplier confusion. Yet it is excitement and change in the market that is in large part leading to the confusion itself. What’s driving part of the excitement – actually a large part of the excitement in procure-to-pay-based lending – is the data that sits inside networks like Tungsten, Basware, Taulia, Nipendo, Ariba, GT Nexus and others. The combination of this data with external data is nirvana for anyone with a doctorate in statistics or mathematics. As with program trading on Wall Street, you can model risk and behaviors.
With all the talk about how much cash corporations have to fund their supply chain, I thought it would be a good idea to examine […]
Many companies have developed early pay solutions to provide some form of liquidity to their supply base. And why wouldn’t they. Having technology in place […]