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.
Step back from the current craze around all the new financial technology solutions for companies to access cash, from e-procurement and e-invoicing solutions to marketplace lending and supply chain finance, and try and think about this from a logical basis – from the perspective of the supplier. You want to pay early. But by the time you figure out how to get it from all these solutions, you’ve logged into half a dozen or more solutions every day that are not directly integrated into your systems. You may even have to hire a few staff. Clearly, this is an area that deserves more attention, which suggests it might move to embracing a supplier-led ecosystem as well.
Supplier collaboration platform Tradeshift announced Tuesday it would partner with C2FO to expand dynamic discounting solutions to a broader network of suppliers and buyers. The partnership will provide more suppliers access to the C2FO working capital market to improve cash flow and allow more buyers to increase pre-tax earnings through early repayment. The partnership can be summarized as follows: Tradeshift, the company that views itself as the B2B equivalent of Force.com, now provides an app for working capital through C2FO, the only solution provider that enables buyers to set the APR return and auction cash to suppliers based on the rates set by latter.
On Trade Financing Matters, I’ve been sharing a number of my thoughts in recent days LINK about some of the challenges and hurdles faced in driving greater adoption for third-party financing for invoice discounting and dynamic discounting, as well as some thoughts on what it will take to cross the chasm from corporate and treasury funded-programs. David Gustin, the managing director of Trade Financing Matters, could not sit still after reading what I had to say and decided to chime in himself. Below, I’ve featured a few of his thoughts on the challenges with non-bank funding for invoicing discounting and dynamic discounting models that leverage an approved invoice through an e-invoicing or supplier network connectivity service.
Yesterday, I covered some of the challenges surrounding the adoption of third-party financing across e-invoicing solutions and supplier networks. But perhaps the more important question is: What will it take for these solutions to cross the chasm from theory to action? I have some hypotheses. Either individually or collectively, it will be fascinating to see how these 5 scenarios come together.
As Tungsten recently reported in its financial results, the level of adoption for bank or non-bank intermediated financing through supplier networks and e-invoicing programs is still embryonic. Spend Matters and Trade Financing Matters estimate that more than 95% of invoice discounting and dynamic discounting programs that leverage an e-invoicing, supplier network or related platform capability currently rely on corporate self-funding to support such programs on a volume basis today. Finding a logical answer to why third-party adoption is low requires a deep dive.
The Prompt Payment Code (PPC) sets standards for payment practices and best practice and is administered by the Chartered Institute of Credit Management (CICM), the largest professional credit management organisation in Europe. The basic standard promotes a 30-day payment terms as the norm and include a maximum 60-day payment term (defined as paying 95% of invoices within 60 days, unless there are exceptional circumstances). Compliance with the principles of the Code is monitored and enforced by the Prompt Payment Code Compliance Board. The Code covers prompt payment, as well as wider payment procedures. I was impressed with the number of […]