A Nightmare on Payment Street – The Supplier’s View of the Early Payment Maelstrom


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.

These networks can combine speed, sophisticated pricing modules and risk analytics, all in seconds. Heck, not only can they use information from their network but they can also leverage information from other sources like D&B or even link to third-party and social media sources such as small business LinkedIn profiles to business owners, combined with background checks on the management team.

Now this is intelligent risk analytics. And it’s possible today.

All this is great, especially since it flips traditional models like factoring on their heads. Factoring, without an approved invoice or the trading data information, requires manual processes to go through a seller’s receivables ledger to determine advance rates, pricing and more.

The old adage, “If you build it they will come,” does not work in this new online world, despite the appeal. The challenge for so many models out there is that they think they can onboard suppliers and they will proactively take financing offers.

Here’s the crux of that challenge. As I have told many vendors directly, while they believe they have a network that brings relationships with both buyers and their sellers, the relationship is actually with the buyers. They pay you quarterly for providing whatever procure-to-pay functionality you do. While their suppliers may or may not pay, the technology company or platform generally doesn’t have a strategic relationship with them and certainly not with the staff that makes financial decisions.

As my colleague Jason Busch pointed out in a series of recent articles on Trade Financing Matters, the level of adoption of bank or non-bank intermediated financing through supplier networks and e-invoicing programs is still embryonic.

So if you want to win in this new world of finance, you better understand the game from all sides, not just the sandbox you play in. There is a lot of noise out there that is confusing many.

For sure there will continue to be what I call receivable erosion from the various financial technology models, but for the middle market, you have to ask yourself, would you rather have a revolving committed facility from your banker for $5 million or would you rather leverage your buyers’ various early pay techniques?

Certainly this is not a mutually exclusive question, as there is and will always be a need for ad hoc cash flow tools. And we know banks and lenders must improve their game drastically or continue to exit business segments by undeserving.

Yet until financial technology companies and network providers put the supplier first as a customer and invest the time to build relationship as banks do, there’s going to be a lot more sizzle than steak when it comes to consistent uptake in the market.

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