Oxygen Finance – can they get procurement people interested in Accounts Payable?

I’ve been writing a longer piece for Spend Matters PRO about why senior procurement leaders should take an interest in the accounts payable end of the P2P process. It hasn’t historically been a very glamorous or exciting area for us – “more trouble than it’s worth”, was generally my view when I was a CPO.  But of course it is intrinsically linked to the procurement process, and not joining up the whole process can have major negatives for the organisation. However, CPOs haven’t seen much upside to taking on AP - but new technology options are changing that.

I had a chat recently with Mark Hoffman, a significant figure in the history of procurement technology as the founder and CEO of Commerce One. (You can read an extensive interview with him that Jason Busch published here on the Spend Matters US site, with links back to previous parts).  Hoffman is now the US Chairman of Oxygen Finance, one of those innovators who are now making supply chain finance and the payments end of the process something that CPOs should consider embracing.

Hoffman was tempted into the business by David Brown, the Oxygen CEO, with whom he worked at Commerce One. “I’m chairing the US business – not running it – but I’m helping David build the team and the business”.

The basic concept of supply chain finance is that the financial strength of the buying organisation is used to provide working capital for their suppliers through early payment of the money owed to them (invoices). But there are complexities around the detail that, to be honest, I’ve struggled with. So I asked Hoffman for a simple explanation that any CPO, even me, could understand in terms of what Oxygen do.

“Simply, we provide a platform for you to manage your payables and offer options for early payment to your suppliers. Those payments can be mutually beneficial – finance for the supplier, discounts for the buyer. But one clever feature is that we’ve got agreement from the authorities in the UK and the US  that the payment discount you offer suppliers can be accounted for as revenue back to the organisation. So it turns procurement into a profit centre for the organisation”.

Oxygen has gone through a quite long gestation period, but Hoffman says the first transactions will be going though the platform this summer.  And there’s a wider agenda here as well. “Governments are printing money, it’s going to the banks, but it is not getting through to the businesses who need it. This process helps that flow of money through the supply chain and accelerates the speed of money in the economy”, Hoffman says.

OK, but how do Oxygen differ from other providers offering supply chain finance options?

“One aspect is that there are no upfront charges for the buyer / client organisation. We’ve got major partners for the implementation side lined up – like KPMG and Accenture – who can help clients get set up, and if required negotiate the deals with the supply chain. They, and Oxygen, make their revenue from a share of the client gains, avoiding any need for upfront investment”.

Another clever angle Hoffman explained is that clients can use their own funding to drive the programme and provide the finance – or Oxygen can arrange bank funding. So in effect, the client would then be using their own financial strength to borrow money, which is passed on to the supply chain in return for cost savings (and potentially revenue) for the client. So potentially everybody wins.

I want to feature more about supply chain finance here – and it’s cousin, e-Invoicing (once a fairly distant cousin, but getting positively behind-the-barn-after-the-hoedown cousin close these days).  As we said at the beginning, they’re traditionally areas that procurement has tended to leave to the Finance folk, but there are good reasons why we should take more of an interest – not least the Oxygen revenue / profit opportunity described above. So more on this topic to come, and thanks to Mark Hoffman for sparing the time for a chat.

 

 

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