More and more procurement software platforms and source-to-pay networks are receiving RFPs from clients requesting way to help improve working capital. Companies, even middle-market companies, have global supply chains. Working capital is important and could manifest itself in the form of yield management, ROI and balance sheet improvement. This is a box on the RFP that vendors need checked.
But the path is not easy.
First, the customer acquisition journey for vendors is excruciating. The sales cycle for AP automation, e-invoicing, e-procurement and other S2P software platforms take over a year with large Fortune 1000s and smaller large corporates. Another year can be spent onboarding a critical mass of suppliers, even when you have a great portal solution and provide the service for free. Integration services are usually free or undercharged. And networks don’t make any money off e-invoicing — so how do you monetize? This is somewhat similar to payments these days, as moving money becomes cheaper and cheaper.
So finance becomes a key component to the overall plan.
But has this journey born fruit? Starting with SAP Ariba and its tie up with the now defunct The Receiables Exchange close to 10 years ago, S2P platforms have dipped a toe in the proverbial working capital space. While not picking on any one initiative, there have been many disappointments or non-starters.
But there have been success stories, such as Greensill and Textura for construction receivables, or Taulia and Greensill for supply chain finance programs. (Taulia announced it accelerated $6 billion in early payments for suppliers in the second quarter.)
We are also finding that dynamic discounting is getting a push by the U.S. corporate tax cut, as more companies have surplus cash and not necessarily stock to buy back, or research or acquisitions to fund, at least now. Having options to deploy cash, either their own or having some flexible funding arrangement, is becoming increasingly important.
Now we are finding more companies are coming to their source-to-pay vendors requesting working capital capabilities around dynamic discounting, supply chain finance, virtual card and even payment support. This is putting pressure on these platforms to develop capabilities around working capital, which puts pressure on the vendor to train internal resources to speak to treasury and procurement professionals at the corporate. In addition, proper incentives need to be added to the global sales team, which is typically used to selling tech solutions around supplier master data solutions or e-invoicing.
Banks are also starting to see this pressure, as many of their clients are users of programs like C2FO, supply chain finance and early pay finance and are looking for programs themselves.
Most solutions in the market focus on tying the buyer with some form of guarantee, but not all solutions are like that. The degree of underwriting is also critical to assess supplier risk beyond just the approved invoice from a network client, so vendors are doing their homework to learn more about what solutions are best for their clients.
It’s a game that can provide scalable revenue, but by no means is it a slam dunk. It takes commitment from all parties to make access to cash for suppliers a reality.
David Gustin runs a research and advisory practice centered on helping financial institutions, vendors and corporations understand the intersection of trade credit, payments and the financial supply chain. This post was written while David worked on a special project with The Interface Financial Group. He can be reached at dgustin (at) globalbanking.com