Third-Party Funding for Dynamic Discounting – Still in Infancy?


On Trade Financing Matters, I’ve been sharing a number of my thoughts in recent days 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:

1. No Real Market

While some vendors will claim there is a market developing for approved invoices off of dynamic discounting as a short-term commercial paper alternative, the supply is nowhere near the demand stemming from pension funds and asset managers. Investors don’t park money waiting to fund things. They invest immediately. And if there is no supply, they look on their Bloomberg terminals and go elsewhere.

Said another way, a compelling business case does not an asset class make.

2. Negative European Rates

With negative rates in Europe for short term money funds, the demand for this paper, especially by pension funds and asset managers, is there, but there is little to no supply.  Despite vendor partnerships with lenders specializing in the area such as Greensill Capital, there does not appear to be scale uptake up programs centered on purchase-to-pay-based triggers such as approved invoices yet.

3. Non-Rated Companies

If you move downstream to non-rated companies, this type of financing value proposition becomes more interesting. Perhaps this is where the market potential is, although many of these companies do not install the e-invoicing and supplier portal technology necessary to enable program adoption, unless driven to by a major event, including a tax compliance issue or growth whereby invoices are not being processed efficiently.

In related research being conducted at the moment, 14 companies that Spend Matters spoke with in the $100 million to $1 billion revenue range didn’t have a supplier portal. For a variety reasons, including culture, having one is not a priority – too much change with suppliers.

4. “What’s my cut?”

Bear in mind that no large enterprise gives something for nothing. If third-party funded models are to succeed and gain scale adoption, the question of, “What’s my cut?” must be answered consistently and compellingly.

As my friends say down at the Jersey Shore, if I only get x%, and I have to pay for certain transactional costs: Fuhgeddaboudit!

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First Voice

  1. Robert Kramer:


    Keep in mind that non-bank funding is not the same as third-party funding. Non-bank funding of approved invoices is indeed in its infancy. Third-party funding however, with the third party being banks, is definitely not. David captured the salient points related to non-bank funding above. To that I would add that non-banks don’t usually have the systems/processes in place to buy invoices, they’re set up to buy securities.

    Also, e-invoicing technology is not a corporate requirement for running an approved payables funding program (i.e. Supply Chain Finance). Of the nearly $100 Billion in payables funding we process annually, very little is done with suppliers on an e-invoicing platform.

    Bob Kramer
    VP, Working Capital Solutions
    PrimeRevenue, Inc.

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