Beyond Self-Funding for Invoice Discounting: Third Party Options (Factoring, Bank, Non-Bank and P-Card)

While much of the interest in P2P and trade financing programs in recent quarters has centered on self-funded (i.e., corporate funded) invoice discounting, there is a whole universe of third party funding options available to support such programs. In a recent paper, “On-Demand, Event Triggered Finance With Network Models – A Game Changer?,” my colleague David Gustin provides a high-level overview of many of them.

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He begins by noting that a definitional aspect of the third party funded equation. In his words:

“'Supply chain finance' describes when the supplier is paid early, but the money comes from someone other than the buyer. This definition of third party funding can apply to a number of early payment techniques, including:

  • Bank approved trade payable programs (or bank supply chain finance)
  • Procurement cards (P-cards)
  • Factoring can even fall under this definition, as it is seller-focused and based off an invoice issued and financed by a third party

Many third party providers compete in this market, either using early pay dynamic discounting technologies or leveraging a highly credit rated buyer’s facilities to access Libor or Eurobir financing rates. These models offer suppliers ad hoc, online, transactional finance.”

Who is funding these programs? In many cases, David notes, “banks are behind the money, either directly under traditional supply chain finance programs or via credit facilities to non-banks who fund these assets.”

Yet new technology, in the form of purchase-to-pay (P2P) platforms, supplier networks and business networks (there is overlap between all of them), is making third party financing, regardless of form, “more efficient and effective.”

David notes, “As more companies use B2B networks to collaborate with their trading partners, the network data itself becomes valuable for finance. For example, the combination of a purchase order, invoice and invoice approval and payment history gives invaluable information to a third-party lender. Networks may also have data on dilution and payment history that are highly valued by these lenders.”

If you’re curious to learn more today on the topic, download David’s full analysis here. We also encourage you to investigate our deep, subscription coverage of trade financing, invoicing discount and P2P on Spend Matters PRO.

In addition to Spend Matters PRO research, David and Jason offer workshops, lectures and advisory services to corporations, banks, private funds, consultancies and technology providers that want to learn more about the trade financing ecosystem and its intersections with new technology products and platforms. Contact them directly to learn more: jbusch (at) spendmatters (dot) com or dgustin (at) tradefinancingmatters (dot) com.

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