Why E-Invoicing Has Failed to Attract Outside Funding

As Tungsten recently reported in its financial results – and as we know from the balance-sheet-financing-led funding programs that Taulia and C2FO customers favor – the level of adoption for bank or non-bank intermediated financing through supplier networks and e-invoicing programs is still embryonic.

Spend Matters and Trade Financing Matters estimate that more than 95% of invoice discounting and dynamic discounting programs that leverage an e-invoicing, supplier network or related platform capability currently rely on corporate self-funding to support such programs on a volume basis today. (Note: We are not factoring into account – no pun intended – traditional supply chain finance or approved trade payables financing programs here of the sort originated by Prime Revenue Inc.)

Academically, this does not make any sense if you consider:

  • There is sufficient liquidity to finance these programs through the partners of the top vendors in the sector and that the providers themselves can bring financing partners to customers
  • The financing rates are materially lower than factoring options for suppliers as well as most card programs or costs
  • There are other benefits for buying organizations, including reducing supply risk, a chance to partially fund programs and others

Finding a logical answer to why third-party adoption is low requires a deep dive. There are a number plausible reasons. To name a few:

  • The percentage of suppliers submitting an e-invoice that’s offered financing is small
  • E-invoicing adoption is still low outside of those countries that mandate it and larger corporates
  • Companies do not always use card programs appropriately. In many cases, another form of early payment financing for mid-size and larger invoices and longer-term supply relationships may be more appropriate. However, the use of virtual cards is low but expanding. Virtual cards fall in line with existing accounting practices and workflows and companies still appreciate the rebates programs can bring.
  • Factors are not bringing their business online with e-enabled partners fast enough, and existing relationships with factors are quite entrenched and long-term. Some are trying by calling technology providers to learn how they might use platforms. But factoring industry associations are not leading along their members quickly enough in this area
  • There is a general lack of awareness of programs
  • Providers are not onboarding vendors or educating them enough about how to take advantage of such programs on a regular basis

What do you think? Are there other reasons that third-party funding in the online channel is so miniscule today?

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First Voice

  1. Robert Solomon:

    Branding problems abound. Even if you can explain the program to a supplier, we are talking about their money, their lifeblood and mentioning company names that no one has ever heard of. I think virtual card success is based, in part, on their familiarity and brand. Even if the price is high!

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