So You Need a Supply Chain Finance Platform David Gustin - June 17, 2014 2:08 AM | Categories: Technology & Platforms | Tags: Orbian, PrimeRevenue Supply chain finance is a very broad category as some define it. But we look at it as something very specific, typically centered on a solution that enables suppliers/ vendors to sell their invoices “approved” for payment by their buyer before the payment due date. Still, hold that thought for a moment and consider the broader landscape – as well as how these tools must interact with a technology ecosystem that already exists. Looked at from this perspective, purchase-to-pay (P2P) technologies to support early payment functionality for your suppliers can come from several different sources. The segments offering early pay functionality include: Vendors that dominate the market for traditional invoice automation. Basware and their venture with MasterCard is an example. Source-to-pay providers that are focused on eProcurement but offer e-invoicing and discounting – for example, Ariba Vendors that are pioneering the platform-as-a-service (PaaS) model, combining cloud-based solutions for data and document management along with apps – Nipendo and Tradeshift are good examples. Financially oriented vendors that bring a holistic package of invoice automation (or just e-invoicing) and dynamic discounting or p-card capabilities. Think Taulia and Tungsten. Next generation EDI vendors that are moving beyond the limitations of a one-to-one traditional EDI model – see Crossflow and again Nipendo. Finally, there are those vendors that offer Approved Trade Payable Finance programs and third party funding providers to their platform and include vendors such as PrimeRevenue and Orbian. If you’re a purist, this last category of providers contains those that fall under the true definition of “supply chain finance.” The above list only represents a small sample of vendors in the respective segments. And remember that vendors can go across segments as well. Substitution is rampant! For example, PrimeRevenue now competes head-on with Taulia for the indirect spend early pay solution. And Taulia can go in and offer to rip out a competing e-invoicing solution (it has its own). Where to start? It’s more complicated than it appears. So, from the above list, if you are a large corporate looking to add early payment functionality to your existing infrastructure, there is no simple point A to point B progression. It really depends on what you are setting out to do, your current infrastructure, and how you would like to do it (use others’ balance sheets to fund suppliers, your own cash, or a hybrid model). And here is where it gets complicated. Yes, very large global corporates have been pitched numerous times by their banks to use the banks’ balance sheet and credit to fund their suppliers in some Libor rate scheme (rates differ quite substantially versus discount or APR rates from dynamic discounting programs). Corporates are then left with a decision – use the bank’s proprietary platform (which in fact the bank may be white-labeling from a vendor) or use a third party. When it come to Approved Trade Payable Finance programs, there are very few vendors that market platforms direct to corporates. PrimeRevenue is the most well known; then we have smaller vendors like Orbian, Demica, and ASYX, each with its unique model or offerings. It’s a niche market and typically a corporate will go down this path if and only if they choose to develop a multi-bank financing model not dependent on any one bank relationship. That tends to be the first key decision point in the decision map. After that, you can talk about many decision drivers that affect a bank or non-bank platform, but only a few of these really matter, in my humble opinion. Middle market companies that have not installed networks or e-invoicing solutions will look to their banks first. Banks have underinvested in this space as they see e-invoicing as a means to do a three-way match opposed to the data that smart innovators are leveraging to lend. To date only a handful of banks have made e-invoicing investments, but with their payment monopoly and their ability to provide rich settlement information and finance (think what Ariba had to do work with Discover to set up AribaPay), they have a huge opportunity in this space. In making decisions concerning early payment platform providers, readers of Trade Financing Matters should consider the following: How important is a multibank solution versus feeding your relationship banks business? In terms of supplier onboarding, are you getting the provider’s “A” team in terms of resources? Should there a risk management strategy in working with one or multiple providers (e.g., concentration of business with a single services provider)? How good are their spend analytic tools? Do they help you analyze not just ROI, but go deeper to evaluate what potential suppliers will actually use the program? What are the platform features and functionality – expertise on documentation, approval of invoices, reconciliation of invoices, payments, etc.? Do you have existing technology you might be able to leverage already? Note, as one example, dynamic discounting programs often begin to look more like static discounting programs overtime and this technology might already be present in your P2P tech inventory (but the infrastructure to enable suppliers to take a timely discount must come first – i.e., e-invoicing) Do you have concerns over vendors offering financing options to suppliers, without your consent, that might contradict contract terms and conditions that were previously negotiated? How important is multiple language and currency support in the platform? Are you only looking at USD invoices, or others? How important is industry sector knowledge in dealing with the issues of credit notes, dilution, etc.? How is the customer experience? This matters!How well does the solution put forth address the trade payable vs. bank debt issue? Do you have any concerns over associated data and metadata with payments? Are you explicitly or implicitly comfortable with this information being shared and/or aggregated (and eventually monetized by a third party)? I starting producing my Supply Chain Finance Payable and Receivable Solutions Guide back in 2007, as this market was just emerging. Seven years later and there still is much confusion about what it is, who does it and what vendor propositions are out there. What do you think? As always, I welcome your feedback and commentary. Related Articles Simeno – A Stellar P2P Enablement Vendor That Few Have… One Company’s Lesson Learned Implementing a Supply Chain Finance program Taulia: The Stealth E-Invoicing Provider? Don’t Do This! Dynamic Discounting and Trade Financing “Worst Practices” Best Practice Tips For Implementing Dynamic Discounting and Other Trade… Supplier Network 2014 Forecast: Customer Recommendations and Vendor Shortlists Voices (3) Herb: 14.02.2017 at 1:22 am David, whats the downside of a multi-bank solution? I assume the banks compete with lower rates and the suppliers are happier as a result? thx Reply David Gustin: 14.02.2017 at 7:02 pm Herb, Great question. Your drift is correct, it is a myth that multinational banks can fund all currencies and jurisdictions, not in this day and age of capital constraints, especially for trade finance – see Are Banks Gaming Capital Rules? – Basel IV & Trade Finance There are sevearal questions a large corporate rolling out a program needs to ask about the most appropriate funding model to fit their needs. Here are a few guiding questions that you can have your Treasury folks explain: • Do you want to self-fund some or all of your suppliers’ receivables? • Do you want to work with a single relationship bank? Or do you want to have a few relationship banks involved? • Do you want an agnostic Funding Model or one managed by a platform provider (who can work with your relationship banks) or other banks? • Are you willing to work with Non Banks? • Do you need to feed your Relationship Bank’s your business? As to securing the lowest rates for suppliers, it depends on the multibank program – but many times suppliers are allocated to different funding institutions who go after them with offers, so there is not the competition you imply in your question. Cheers, David Reply Robert Kramer: 24.07.2014 at 9:24 am David, lots of good points in this post. I think another consideration when examining Supply Chain Finance providers is how extensive are their Procurement support services. After all, companies don’t implement SCF to provide suppliers with an early payment capability. As you’ve pointed out in the past, companies implement SCF as part of a broader initiative to extend supplier payment terms and reduce working capital requirements. Procurement is responsible for achieving that objective. How can an SCF provider help here? Some provide extensive Procurement support services and sophisticated web-based tools to the Procurement team. For example, they may help determine optimized payment terms through benchmarking and industry analysis, prioritize suppliers based on their financial and operating characteristics, provide web based negotiation support tools, etc. Companies implementing SCF need to think about how much support they want from their SCF provider with respect to helping them achieve their primary objective – reducing working capital requirements. Bob Kramer Vice President, Working Capital Solutions PrimeRevenue, Inc. Reply Discuss this: Cancel reply Your email address will not be published. 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