Category Archives: Payables Finance

As coronavirus idles service economy, ‘merchant cash advances’ can help e-commerce vendors

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The coronavirus outbreak is shutting down our service economy. Besides the usual suspects — restaurants, bars, gyms, etc. — we have a whole host of products and services where demand is collapsing.

It’s tough sledding when demand is vastly reduced or just plain stops.

One area where we won’t see declines is around digital commerce. As widely reported, Amazon announced plans to hire 100,000 warehouse workers. Many of the sellers on these platforms will be in need of cash to survive or to meet demand, and thus keep workers paid, including employees and gig workers.

While merchant cash advances (MCAs) may not be the cheapest form of generating quick cash flow, they are fast and are not a loan, but a sale of future receivables.

Fed’s view on the digitalization of B2B payments and digital currency

“The ultimate flaw in bitcoin and alternative money is it is contesting the State for the control of money.” — Ben Hunt, Epsilon Theory Back […]

Can you benchmark FX rates for cross-border B2B payments?

I’ve always found that the one area where banks gouge the consumer and small businesses is with foreign exchange rates. FX is one of those opaque transactions where it’s “this is the rate we offer, take it or leave it” for most of us. And if you compare the rates the banks provide from what you Google, you know you are proverbially hosed.

So when asked who provides the best FX rates out of all the fintech players, the answer is who knows. But let's take a closer look at the situation.

B2B payment companies should be prepared to raise your anti-money laundering game

New players are innovating the way cross-border B2B payments are made and are bringing new business models that bundle these payments with other activities, such as foreign exchange conversions, wallets, invoicing, virtual accounts, etc. But with the growth in cross-border B2B payment companies, I thought it interesting that these new players are entering a space that is getting increasing scrutiny for illicit money movement by traditional means — trade misinvoicing.

What is trade misinvoicing? Simply put, moving money across borders by deliberately misreporting the value, volume, and/or type of commodity. Many anti-money laundering efforts (AML) exist to stop the practice.

B2B payments boring? Think again as companies attract significant venture capital

Technology that facilitates B2B payments is increasingly attracting venture capital money in many areas:

* Pure product plays that look to take market share away from banks in areas like cross-border payments, check-to-ePayment conversion, virtual account structures to replace the need for a correspondent bank network, etc. * Infrastructure plays, which provide the foreign exchange services, Technology, Operations, Compliance and Risk management to enable banks, fintech and money service brokers to offer services to their client base. * Service providers that build B2B payment applications for banks and corporates. Typical areas of focus include cognitive automation, cloud and blockchain. Banks also want to move on from legacy infrastructure and do it incrementally in quick cycles.

B2B payment companies have raised significant amounts of capital recently, including Currencycloud ($80 million), AvidXchange ($260 million), Tipalti ($76 million, Transferwise ($292 million), Marqueta ($260 million), Ripple ($200 million) and Paystand ($20 million). Of course, Mastercard (AvidXchange) & Visa (Currencycloud) are behind some of these investments, driving B2B card use through the rails.

There are number of reasons why VC money continues to pour in here:

The Journey to Multi-Tier Finance

Can visibility of data via deployment of technology — like blockchain, IoT and smart apps that provide product flow and supply chain party information — enable models to develop financing earlier and deeper into the supply chains?

This is a question worth asking, because trying to go beyond Tier 1 suppliers with an approved buyer invoice scheduled for payment tied to a buyer irrevocable payment undertaking is about as far as we have come.

What does Apple Card have to do with B2B lending?

Recently, a tweet caused a big kerfuffle when Danish programmer David Heinemeier Hansson tweeted that his credit limit for the new Apple Card was 20 times that of his wife’s, even though she has the higher credit score. All of a sudden the news picked up stories on gender bias, claiming the credit card's issuer, Goldman Sachs, is giving women far lower credit limits with the new Apple Card, even if they share assets and accounts with their spouse.

But it's impossible to know if the Apple Card — or any other credit card — discriminates against women, because creditworthiness algorithms are notoriously opaque. Credit scores are only one factor in determining credit worthiness, so it’s hard to jump to conclusions.

But if the future is more technology around B2B lending, just how concerned should we be that models built on AI may not be as good as one might think? If we are to believe the capabilities of AI, and I do, then through self-learning mechanisms like self-driving cars, the intelligence should get better with more experience.

But humans design software, and humans have biases. Some examples include:

SoftBank invests $1.65 billion in supply chain finance. Why?

At $100 billion, the SoftBank Vision Fund is both the largest private equity fund ever raised and one of the most complicated. On the heels of some public wounds with the likes of WeWork and Uber, I wondered why the keen interest in supply chain finance (SCF).

Is ‘supply chain finance’ a fancy way of saying ‘financialization’?

What is financialization?

“Financialization is profit margin growth without labor productivity growth. Financialization is squeezing more earnings from a dollar of sales without squeezing at all, but through tax arbitrage or balance sheet arbitrage.” — Ben Hunt, Epsilon Theory

Is payable finance (aka reverse factoring or its generic form, supply chain finance) as practiced by large corporates, really just balance sheet manipulation? 

LIBOR Phase Out: Considerations for Supply Chain Finance

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LIBOR has been the default benchmark interest rate for supply chain finance since this technique was developed approximately 20 years ago. By year-end 2021, LIBOR will be phased out.

So how does this impact supply chain finance? For a market that is approaching $500 billion globally in size, it’s a significant challenge.

Large Companies Lack Cash to Fund Their Supply Chains

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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.

The popular opinion has been that many large American companies are flush with cash. In fact, surveys from some reputable institutions support this view. The AFP’s corporate cash survey found during the second quarter of 2019, U.S. businesses continued to build their cash and short-term investment holdings. This is intuitively supported by events like the corporate tax cut last year.

But this narrative is highly misleading.

Blockchain and Digital Invoice Finance — What’s Missing?

Similar to an idea in the movie "Inception," blockchain has been imprinted on our brains as the solution for just about everything. But recently, a number of articles have taken a negative perspective on blockchain. Now I for one am never about technology for technology’s sake. But let’s not throw the baby out with the bathwater. Distributed ledger technology really started ramping up only about 36 months ago. Considering that Amazon was still only selling books online after its first two years, why does blockchain have to change the world so quickly?