Supply Chain Finance – Oxygen finds the local government atmosphere agreeable

This week we’re going to feature update posts about major UK players in e-invoicing and supply chain finance (SCF) that we’ve met recently, followed by some thoughts on how the market is developing generally. If this is a topic of interest, do look at our Spend Matters US site, particularly for more detailed converge of US based firms in this space (such as Taulia), and also our new sister site Trade Financing Matters, run by David Gustin, who forgets more about SCF before breakfast than I will ever know.

Today, let’s look at Oxygen Finance.  The firm has been around for a few years, but now appears making real client gains and getting into service delivery. Their proposition is both service and technology based  - they promote their offering as a programme which “enables buyers to accelerate payment to their suppliers in exchange for a rebate, which is deducted from the supplier invoice as the point of payment and repatriated to the buying organisation”.

To do that, Oxygen focuses on getting the end to end invoicing process under control, so that SCF can be offered to suppliers and properly managed, with buyers benefitting from early payment discounts. That process includes robust supplier onboarding processes, including smaller suppliers, as well as invoice management and payments. Oxygen work with partners to re-engineer the invoice management process and install the Oxygen platform, which overlays current IT systems and ERP non-invasively (as they put it).

It’s been an interesting few months for the firm as well. David Brown, the founder and creative brains behind the firm initially, has stepped back from day to day management, although he retains a major shareholding. Mark Hoffman is Group CEO and Roberto Moretti , a 27 year veteran of RBS, latterly as Head of Risk Solutions for Western Europe, is now CEO for Europe. I was impressed to find out when we met recently that Moretti is getting very involved with one new local authority client in a deeply hands on manner  himself, in order to truly understand the business – something more CEOs should do.  He’s also perhaps simplified the messages about what Oxygen does, all to the good to many of us, I suspect, who find some of the intricacies about SCF somewhat confusing.

What differentiates the firm from the competition? For a start, their ‘sell’ is around more than just an SCF offering – it includes elements around  improving supplier relationships and process re-engineering as much as the software – hence the involvement of consulting firms who support that work as Oxygen’s partners. Oxygen are right to point out that just putting in some software won’t make your P2P process efficient and effective.  Getting to the point where approved invoices can be considered for SCF requires a decent system for onboarding suppliers, receiving, matching and authorising invoices.

Then, there is their targeting of the UK public sector, particularly local authorities (councils) – not an area of focus for much of the competition. Getting some real reference sites  (e.g. Oldham) was an important step, and the ‘framework’ that Northumberland let which means other Councils can use Oxygen without having to run a full competitive process, is another big positive. The pitch to the public sector is simple. The public body saves money via the discounted invoices, whilst the suppliers, including even the smallest of suppliers, can get their money 20 days or more sooner than usual, in return for that small discount. Oxygen’s experience to date is that suppliers accounting for around 40% of the spend by value are signing up for the programme where it is live.

As well as Oldham, three other substantial councils have gone live, with six more implementations in the pipeline. Becoming the dominant player in local government is not a bad aim, and would probably ensure (if nothing else) that Capita will make a decent offer for the firm in a couple of years’ time!

There are however a couple of issues for Oxygen. The system works on the basis of opt in / opt out by suppliers. So each supplier can decide to be part of the SCF programme and get paid early for all invoices to that customer  – or none. They can’t select on an invoice by invoice basis, which several of the potential competitors allow. There is also the question of how competitively Oxygen can raise the finance - will their option be competitive against some of the more creative financing routes?  (See further posts this week).

But Oxygen’s progress, particularly in the UK public sector, is impressive. This is a huge potential market, and there is certainly first mover advantage in having that presence already in the local authority world, which bodes well for the firm generally.

Voices (4)

  1. Secret Squirrel:

    That’s good to hear. Supply chain finance has a definite role to play for forward looking organisations so to hear that Oxygen have started to get this right is a good thing.

  2. Roberto Moretti:

    I don’t normally respond to these forums however I think I should to clarify a couple of tings. Fred, you are 100% correct in terms of how long the company has been going but the traction Peter refers to is that achieved in the last 18 months since Mark and I took up our positions. I believe that this is indeed significant and the feedback from our investors on the progress made is very positive.

    SS, I’d be more than happy to meet with you. Again as Peter has referred to, the sales message is different to what it was and the value add is, we believe, a lot clearer. Even if the solution is still not for you we are always open to constructive criticism and would welcome it.

  3. Secret Squirrel:

    I remember one of their sales guys coming to see me a few years ago. The pitch was that I should negotiate a saving, pay the same price via Oxygen and get my saving back a few weeks later as a rebate. That would be good as I could prove the saving against the baseline which I couldn’t if I just paid a lower price.

    I pointed out the key point was the acceptance of the baseline. If that was accepted internally, then I didn’t need Oxygen and I kept the cash in my cashflow rather than moving it to them.

    I hope they’ve moved on since then as I felt that pitch was snake oil.

  4. Fred Bloggs:

    You say: “Oxygen’s progress, particularly in the UK public sector, is impressive.” Do you really think so? They’ve been going for several years, as you say, and have just a handful of not-very-big public sector organisations as clients. Lord knows how much cash they have burned. Why don’t you ask them a few questions about clients, delivered benefits, running costs etc and see what response you get?

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