Get smart — Early-pay finance vendor assessment

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Today, many large businesses may be running several early-pay finance techniques targeted at different supplier segments. Each of these techniques comes complete with their own set of technology and operational components, including virtual cards, marketplace auctions, third-party payable finance and dynamic discounting. Companies may be looking to expand programs regionally, or simplify their current offering, or have a mandate from the CFO to find a way to offer early pay finance to ALL suppliers.

There are only a handful of nonbank vendors that provide technology, platform, a direct sales force, managed services, and committed funding to enable both dynamic discounting, supply chain finance, and possibly even supplier finance for buyers and their supplier network.

The complete suite typically includes a:

  • Platform for a buyer to manage their payable finance program, providing both buyer dashboards and supplier portal, and options for both dynamic discounting and supply chain finance
  • Direct sales origination team to sell direct to buyers
  • Scalable and committed funding source (as most don’t have a balance sheet or have bank lines of credit to do selective financing)
  • Managed services offering both supplier sign-up and support (technology + ongoing)

Only a handful of major nonbank vendors provide most or all of the above at any scale and across multiple regions.

I find typically many vendors do not have a direct sales force and secondly, commitments to finance, sometimes relying on a bring-your-own bank strategy for funding.

How does a corporation begin to evaluate vendors?

What questions should they ask?

This can seem overwhelming. Following a disciplined approach helps. Through our work over the years, we have developed a template of more than 100 detailed early-pay finance requirements. Here is a look at a sample of some key categories along with a few sample questions:

Example Categories Sample Questions
Technology Platform

 

  • To what extent does the platform support out-of-the-box integration with ERP systems such as Oracle, SAP, JDE, etc. as well as P2P systems like Coupa, Concur, WOMS, etc.?
  • When companies take early pay, how does the ERP system change to reflect the funder as the new payee?
Managed Services — Spend Analytic Tools
  • How do you help the customer determine if a supplier should be on virtual cards or use dynamic discounting?
Managed Services — Predictive Analytic Tools

 

  • Explain how you are using artificial intelligence and machine learning applied to buyer’s supplier networks to determine optimal pricing strategies.

 

Managed Service Onboarding Practices — Patriot Act & Other Screening

 

  • Describe your KYC process with suppliers, and how the platform enables verification and compliance to KYC standards in multiple jurisdictions, including requirements and certifications, background checks, regulatory and reporting requirements, localized requirements, requirements for new suppliers in high-risk countries, etc.
Dynamic Discounting Module

 

  • Explain how your solution handles VAT when invoice discounting and how many countries is your solution approved for?
  • What discount information does the supplier see — APRs or discount, or both discount (plus converted into APR)?
Supply Chain Finance Funding Models

 

  • Describe your funding model for third-party finance (bank credit lines, SPV structure, marketplace, bring-your-own bank, etc.).
  • Explain how your system enables buyers to self-fund and also turn off if they require third parties.
Supplier Portal
  • Explain what options are available to the supplier to early pay their customers receivables — can they enable automated early payments via supplier settings, can they request early payments on individual invoice(s), or can they use the cash planning tool to request early payments en masse.
  • Describe the globalization capabilities, paying particular attention to capabilities beyond multi-currency and multi-lingual.
Legal Structures

 

  • What additional documentation must suppliers sign for off-network lending?

These are just a snapshot of the template built.

Rolling out early-pay opportunities for your supply base — whether a combination of v-cards, dynamic discounting, supply chain finance or invoice auctions — takes times. There are so many questions to address. Everyone starts with a different baseline. Everyone will have different measures for success.

Besides knowing the questions to ask, there are also the soft questions, such as fit with your relationship banks in your revolver, internal management time to both roll out and manage, and the alignment with existing organization structures. To run this program on an ongoing basis and meet milestones takes the commitment of key executives, including in departments for treasury, procurement, shared services and supply chain.

As you make the journey to evaluate solutions in the market given your current baseline, make sure you know what questions to ask and how to compare the various propositions in the market.

David Gustin runs Global Business Intelligence, a research and advisory practice focused on the intersection of payments, trade finance, trade credit and working capital. He can be reached at dgustin@globalbanking.com.

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