Trade Financing Content

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

Most discussions about early payment solutions focus on buyer-centric models, ones that scale by bringing technology, managed services and perhaps some underwriting to offer supplier finance. This is a big opportunity that top providers have been going after for years, of course, and the potential market is huge. But the flip side of the coin, deferred payment solutions, where sellers are paid early (or based on their standard terms) and small buyers can extend those terms outward to 90 or 180 days, is a less understood market — both in terms of potential, technologies and the type of underwriting to manage losses.

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

“Ahhh. This porridge is just right.”

— from “Goldilocks and the Three Bears”

The Goldilocks principle is named by analogy to the children's story “The Three Bears,” in which finding the right temperature for porridge took some sampling.

So how do you make sure the porridge is just right if you are today’s middle market treasurer and need to balance liquidity, access to capital (and if rated, a quality rating), and ensuring the right amount of cash?

Most middle market companies are not flush with cash. In fact, when thinking of capital structure, there are many things that keep the CFO/treasurer up at night.

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

In a recent TXF article on Vodafone's supply chain finance program and its early pay program, Oliver Gordon, features editor, said: “Vodafone has been using complex financial engineering devised by GAM and Greensill to enable it to profit from and invest in its own SCF offerings and bolster its DPO (days payable outstanding).”

Personally, I have no problem with a company wanting to use its cash to self-fund an early payment program for their suppliers in exchange for discounts. Many large corporates implement some form of dynamic discounting that enables their long tail suppliers, and specific segments — diversity suppliers, choice suppliers, small businesses — access to early payment once an invoice has been approved. In fact, this practice has been going on for decades and now technology allows companies to systematize it and offer it to select suppliers, different supplier segments or all suppliers.

I also have no problem if a company wants to use this construct to invest in their own payables or some other company’s payables. But this does bring up three important questions.

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

As we pointed out in our last post, payment companies are looking to convert paper checks to cards, and this is drawing interest from many firms, from private equity investing into payment companies to acquisitions (e.g., Fleetcor acquiring Nvoicepay, Visa buying Earthport). The key weapon of payment companies is to leverage interchange fees to entice their clients (buyers) through rebates and extended terms to provide an early pay option for suppliers, typically with a discount from the invoice of 2% to 3%. Yet there are several reasons why a “card only” strategy from payment companies is suboptimal.

Earlier this week, Corcentric — a provider focused at the intersection of accounts payable automation, order-to-cash, trade financing, procurement consulting and group purchasing organization (GPO) software and services — announced its most strategic software acquisition to date: Determine.

But what are the highlights of the transaction? How do the proposed terms of the combination address Determine’s balance sheet liabilities — and more important, what is our summary analysis of Corcentric + Determine?

In this two-part Spend Matters PRO brief, we will provide an overview of the combination (by the numbers), an analysis of the transaction/valuation, our “elephant in the room” observations, summary recommendations for Corcentric and Determine customers and an analysis of the competitive landscape implications of the transaction.

In later PRO research briefs, we will offer our perspective on Determine’s functional strengths and weaknesses in both the procure-to-pay (i.e., e-procurement and invoice-to-pay) and strategic procurement technologies (e.g., sourcing, CLM, etc.) areas and what these bring to Corcentric, and, with sufficient distribution (that they lack today, at least in North America), what they could bring to the broader source-to-pay market.

David Gustin is the chief strategy officer for The Interface Financial Group responsible for digital supply chain finance and is a contributing author to Trade Financing Matters.

In my last post, Many Fintechs Still Rely on Bring-Your-Own-Bank Strategy for Supply Chain Finance, I discussed how source-to-pay platforms and other cloud software providers still rely on their clients’ house banks for supply chain finance and why that might not be the wisest strategy given the times. So if you are a Fintech and want to offer supply chain finance, what are your options beyond a house bank strategy?

Now, digital B2B lenders can use fast data to scour thousands of individual data points — to instantly create a dynamic credit limit for companies that work on a particular supplier portal but only have a small percentage of receivables running through it. By having an off-platform model, this company can fund as many invoices as they want until they reach their credit limit. Virtually every supplier can be funded — only those in bankruptcy or on government watch lists are ineligible. This new form of B2B lending marries two core competencies.

Spend Matters welcomes this guest post from PJ Bain, CEO of PrimeRevenue.

“Hello transformation. Meet reality.” Those four words sum up where the global business climate has taken us in 2018, and where it will lead in 2019. Whether in the context of industry or geopolitical transformation, the economic implications of transformative change have exposed vulnerability. How can companies fund transformation in an economic climate that’s equal parts encouraging and concerning?

When it comes to working capital and liquidity today, there are more options than just black. Almost all companies have some form of permanent capital to fund their business operations. Even the smallest companies typically have an overdraft facility or business line of credit with their bank. Larger companies are serviced by an array of conventional (banks, factors, ABL) and non-conventional (asset managers, insurers, specialty finance) financial firms. Until recently, however, the idea of ad hoc working capital to supplement more permanent forms was not a reality, since the combination of technologies such as e-invoicing, dynamic discounting, API integration and supplier portals were being developed along with third-party sources of capital. But through rapid B2B digitization and more widespread deployment of purchase-to-pay and supply chain collaboration platforms, companies now interact with their buyer-supplier ecosystems in new ways that enable and simplify ad hoc working capital.

In the second installment of our M&A predictions for 2019, I explored an expanding focus on services procurement (assets), the increasing acquisition interest in strategic procurement technologies among buyers, and the scarcity of e-procurement and procure-to-pay targets left in the market. This builds on the first installment in the series, in which I explored the deals that have happened already in 2018, as well as our first three of 10 prognostications for next year. First, private equity firms will play an increased role in the sector. Second, valuations will be all over the map. And third, peripheral players will respond to the “Amazon” effect.

Today we turn our attention to three additional predictions. Everyone who knows me in this space knows that my greatest weakness is to wax on — not usually eloquently. So I’ll try to go straight to the point with the next predictions in the 2019 procurement technology and solutions M&A lineup.

I often get this question about how factoring and supply chain finance differ from traditional invoice finance. And the real answer is its very murky. There is certainly a blurring between invoice finance, invoice discounting, factoring, supply chain finance and asset-based lending.

By whatever name you want to call it, what really matters is what usury laws are governed by the lending technique and how bankruptcy court will interpret the structure (loan, asset purchase) and what the state or legal jurisdiction laws are in relation to the technique. Definitions are fine to help educate and illustrate, but they are meaningless when it comes to judges and investors.

The crowdsourcing concept called the “wisdom of the crowd” is where a thousand non-experts will make better decisions than the most sophisticated experts in any field. Yet humans are subject to biases in their decision-making. These biases can bleed into the artificial intelligence algorithms we design to try to make us more efficient and effective. Read about the four that we should recognize.