Why Non Approved Invoice Finance may be the Holy Grail for Vendors


The term supply chain finance is not universally accepted nor well defined.  As more and more vendors enter the transaction finance space, we need to better understand how traditional lending models and credit facilities function versus supply chain finance, early pay techniques, and various seller based adhoc funding models.

Many businesses that rely on credit facilities and other traditional lending products (asset backed loans, terms loans, etc.) with their banks or commercial lending companies have found that options are opening up like never before.  I am not talking about all the marketplace and peer to peer lending companies, which are squarely focused on very small business and loans typically under 250K, but techniques that are using information like never before to inject capital.

Both on the AP and AR side, there are solution providers that have data contained in their network to enable funders to lend money.  By using performance history data along with visibility and underwriting models, various events or triggers in the supply chain can be used to release cash.  There are five main triggers that we see for transactional finance that can involve taking information to trigger liquidity. They are:

  1. Purchase order issuance
  2. Materials ordered by supplier
  3. Verification of shipping status
  4. Invoice issued, but not approved
  5. Invoice approved

We have discussed how many vendors are going after transactional finance via approved invoices combined with dynamic discounting.  That world is very crowded.   Companies themselves who build their own portal solution can add that capability as well.

As it relates to Invoice issued, but not approved or what some call the Non Confirmed Invoice Finance Space, more and more vendors are attempting to play here with different models.   There are only a few that are active and many that are ramping up.  Active ones include Nipendo, Tungsten, and PrimeRevenue and ramping up includes Taulia with Greensill, GT Nexus (now part of Infor) and Seabury and Basware through their partnership with ArrowGrass Capital.

We will cover these models in greater detail, but one interesting observation is that for many that have played in the dynamic discounting world where companies self-fund their own payables early, the gain share from those models has proved challenging.  The simple reason is that when a buyer approves the invoice, the vendor is not really adding value on the financial side.  But for non confirmed invoices, that is not the case.  The vendor is adding value via their information, and gain share is appropriate.

The challenge to build intelligent underwriting models  to do non confirmed invoice finance is critical.  If your information relies on external third parties like D&B to assess risk, that is one thing.  But if you can tie back the transaction to the purchase order, contract, shipping and receiving data, etc. and take this data and make credit decisions,  that is powerful.

Every vendor who claims they can do this will have a different business model.   This is the important things to understand.

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Please contact me at dgustin at tradefinancingmatters.com with anything you would like to share around this space.  And don't forget to follow David Gustin on Twitter @TFMatters

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  1. Glenn Blackman:

    An interesting article. Data truly is the key driver to invoice finance companies making as much funding as possible available.

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