Category Archives: Supply Chain Finance

Blockchain and Digital Invoice Finance — What’s Missing?

Similar to an idea in the movie "Inception," blockchain has been imprinted on our brains as the solution for just about everything. But recently, a number of articles have taken a negative perspective on blockchain. Now I for one am never about technology for technology’s sake. But let’s not throw the baby out with the bathwater. Distributed ledger technology really started ramping up only about 36 months ago. Considering that Amazon was still only selling books online after its first two years, why does blockchain have to change the world so quickly?

Deferred Buyer Payment Solutions: The Search for the Holy Grail

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

Most discussions about early payment solutions focus on buyer-centric models, ones that scale by bringing technology, managed services and perhaps some underwriting to offer supplier finance. This is a big opportunity that top providers have been going after for years, of course, and the potential market is huge. But the flip side of the coin, deferred payment solutions, where sellers are paid early (or based on their standard terms) and small buyers can extend those terms outward to 90 or 180 days, is a less understood market — both in terms of potential, technologies and the type of underwriting to manage losses.

Addressing S2P Platform Misconceptions Around Early Pay Programs

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

Few source-to-pay platforms, payment processors or other networks have been able to develop early pay dynamic discounting management (DDM) or supply chain finance solutions that have added significant revenue to their enterprises. (See Why Platforms Need to Monetize Their Supplier Ecosystem.)

This comes at a time when these platforms are building new capabilities to boost revenues, including providing supplier invoice aggregation services; adding payment functionality; and helping clients migrate to cloud solutions.

From my conversations with many S2P platform vendors and payment processors, I hear three buckets of objections:

Many Fintechs Still Rely on Bring-Your-Own-Bank Strategy for Supply Chain Finance

Today, banks are by far the dominant player in providing supply chain finance, and do so in four ways. And many Fintechs that offer source-to-pay (S2P) and other supply chain collaboration solutions still have a strategy of using their clients’ house banks for supply chain finance. While it makes things easy if the customer can bring their own bank, it does not come without risk.

Ad Hoc Working Capital and the Diversification of Liquidity

Toyota supply chain

When it comes to working capital and liquidity today, there are more options than just black. Almost all companies have some form of permanent capital to fund their business operations. Even the smallest companies typically have an overdraft facility or business line of credit with their bank. Larger companies are serviced by an array of conventional (banks, factors, ABL) and non-conventional (asset managers, insurers, specialty finance) financial firms. Until recently, however, the idea of ad hoc working capital to supplement more permanent forms was not a reality, since the combination of technologies such as e-invoicing, dynamic discounting, API integration and supplier portals were being developed along with third-party sources of capital. But through rapid B2B digitization and more widespread deployment of purchase-to-pay and supply chain collaboration platforms, companies now interact with their buyer-supplier ecosystems in new ways that enable and simplify ad hoc working capital.

How the Contagion Effect Could Blow Up Network Finance

In the real world, you plan for an event and it works out for a while. Then things fall apart. So you react and plan more — hoping to stop the problem from creating a contagion effect.

And here you are, thinking that you built this nice network finance model to finance your suppliers not just on approved invoices, but invoices that have been issued, or even more upstream, purchase orders that have been issued. And things have been working smoothly for a couple of quarters, or maybe for even a year or two.

But then it happens. More things fall apart.

Why Platforms Need to Monetize Their Supplier Ecosystem

Because P2P solutions started giving away supplier portals, cash flow optimizers, analytics, support, etc., they closed a revenue door. Trying to build a sustainable business model when half your ecosystem is not monetized is very challenging, even as P2P platforms add features and functionality. Sure, many platforms are trying to figure out payments, and that is something that scares the bejeebers out of them due to regulations and compliance rules. (Don’t pay that blacklisted vendor or person, or else.) But payments is not a profitable business for platforms, it’s a service.

Early Pay Finance Ain’t Easy: Understanding Customer Deductions

Every industry is affected by customer deductions. Called a variety of names by companies — including deductions, chargebacks or short-pays — from the perspective of a digital lender focused on invoice finance, understanding the nature of deductions is a first start to building smart underwriting and dynamic lending capabilities. Why? Deductions mean a diluted invoice value.

Intelligent Trade Finance: The Confluence of Blockchain and the Internet of Things

Spend Matters welcomes this guest post from Biji John, product manager, trade finance, at Finastra.

The fundamentals of trade and trade finance have not changed in centuries: it’s process heavy, with bottlenecks and disputes everywhere. Characterized by paper and manual operations, the back office is ripe for next-generation transformation. In the middle and front office there is potential for far greater automation and use of real-time data, for example in the accounts receivables process, in SME credit underwriting, loan booking, and monitoring and indeed for relationship managers (human and virtual) to surface and analyze data to gain insights and provide more data-driven recommendations to corporate clients along the financial supply chain.

Fintech or House Bank for Early Payment Solutions: Key Differences

There are three buyer-centric solutions to facilitate early payment for suppliers: supply chain finance, dynamic discounting and commercial cards (p-cards, v-cards). Bank-developed solutions in this space rely heavily on companies using credit lines. The focal point tends to be on p-card solutions, not dynamic discounting. Why? P-cards generate much more in fee revenue than dynamic discounting, particularly if a client uses its own funds to facilitate early payment instead of a bank credit line. 

Why Platforms and Source-to-Pay Networks Need Finance

More and more procurement software platforms and source-to-pay networks are receiving RFPs from clients requesting way to help improve working capital. Companies, even middle-market companies, have global supply chains. Working capital is important and could manifest itself in the form of yield management, ROI and balance sheet improvement. This is a box on the RFP that vendors need checked. But the path is not easy.

Using Information Advantages to Finance B2B Transactions

We've all heard the stories around how supply chains are digitizing. A real transformation is underway, no doubt. But transformations don’t happen overnight. Likewise, traditional forms of financing supply chains still dominate. Many new models of lending have emerged over the last few years that rely on the approved invoices and third-party money, and while some models have generated volume, these pale in comparison with total B2B transactions. This is not to say there are not failures. In fact, the innovations that have been tried and failed lead to further innovation, piggybacking off of lessons learned.