Tradeshift: Making E-Invoicing Free by Gunning for a Slice of the P-Card Market (Part 1)

Electronic Invoicing, invoice automation and supplier/buyer-based network connectivity are topics we've covered in depth on Spend Matters over the years, including a recent background analysis we've published as part of our Compass series research on the topic (you can download this paper, E-Invoicing Comes of Age -- Discovering What's Possible From the Latest Electronic Invoicing/ Invoice Automation Capabilities, by clicking here). Yet one provider stands (relatively) alone in the e-invoicing market, by offering a service that connects buyers and suppliers for free. From the other side of the pond, my colleague Pete Loughlin, recently profiled some of the core elements of where Tradeshift is taking its model in a recent post titled "Looking Under the Hood of the Tradeshift Enigma." According to Pete, "Behind the enigmatic facade of Tradeshift is a brave business model -- a business model that is going to fundamentally change the rules of supply chain finance...The aim is to bring to the whole of the market, SMBs as well as bigger players, the commercial benefits of supply chain finance. It will allow suppliers to receive instant payment -- in the same way they could with a purchasing card or credit card -- without the merchant fee."

Pete further suggests that Tradeshift can enable this model based on the underlying reams of data that it processes based on invoice information flowing back and forth between suppliers. This enables them "to make detailed and near real-time risk assessments of the financial transactions within their community and, when it's appropriate, factor approved invoices and pay suppliers immediately." While this certainly sounds "cool" as Peter suggests, there are potentially significant hurdles to this model, not to mention lots of competition lurking in the shadows. Still, the concept of replacing card-based transactions with a model that enables instant payment with Tradeshift acting as the originator (or marketplace) to enable factoring is quite fascinating indeed (as is their fundamental model that ties this payment mechanism to an underlying electronic invoicing capabilities).

Yet we would be cautious about running out and singing the praises Peter lavishes on the concept too quickly. Granted, for a portion of company spend, if Tradeshift can provide an aggressive rate of finance for early payment (and assume fraud risk, about other factors) and replace p-cards, they've definitely got a winner on their hands. Yet the importance of tying electronic invoicing into a broader P2P context is critical. As we note in our recent Compass research on the subject:

"Outside of a portal capability to onboard suppliers, capture information and provide a means of supplier self-service to check on the status of an invoice, the next critical modular area of an electronic invoicing solution is broader solution interoperability and integration into eProcurement systems, ERP/MRP, services procurement/VMS solutions and different payment mechanisms/systems (e.g., p-card PO/p-card invoice, ACH, check). It's important to remember that no solution or vendor, however broad, is an island. Because of this, it is imperative to ensure that a single vendor or multi-vendor electronic invoicing solution enables broad interoperability and real-time linkages and workflow integration with other transactional and workflow systems as well as systems of record -- not to mention other potential invoicing partners for specific geographies where vendors may already be connected into a network operator environment."

In short, if Tradeshift approaches this market and realizes that it's not a supply chain finance island in the broader electronic-invoicing system community, then what they might have here could very well have legs. But replacing the information provided by p-cards on the line level beyond when it comes to level 3 data also won't be easy (nor will the benefits of presenting detailed, aggregated data on a periodic basis of all transactions). But let's hope they've thought of that already...

Stay tuned as our investigation of Tradeshift's model continues. We also hope to catch up with them in our next jaunt across the pond in November. In the meantime, if you want to better understand how a solution like Tradeshift can fit into a broader electronic invoicing and purchasing ecosystem, we would encourage you to download our latest paper on the subject: E-Invoicing Comes of Age -- Discovering What's Possible From the Latest Electronic Invoicing/ Invoice Automation Capabilities, by clicking here).

Jason Busch