IS DIGITAL SUPPLY CHAIN FINANCE POSITIONED TO TAKE OVER

IS DIGITAL SUPPLY CHAIN FINANCE POSITIONED TO TAKE OVER INVOICE FINANCE?

April 9, 2018

USA 2018Panel:

George Shapiro – InterFace Finace GroupAndrew Jesse – TradeshiftDavid Gusten – Global Business Intelligence

Moderator:

Bill Panak – Halo, a Logility Company

2 © LendIt USA 2018

SCF ON THE MOVE

The global invoice finance market - $3 trillion p.a. growing at around 10%-15% p.a.

Supply Chain Finance

From Limited Market Share to Domination of the Global Invoice Finance Market

Supply Chain Finance (“SCF”) historically represents a small % of the total invoice finance market

Access to data generated by Suppliers Information Management platforms provides an opportunity for better targeting, risk management, etc...

This is about to change thanks to accelerating growth and adaption of e-invoicing technology

Thanks to integration of P2P, S2P and E-invoicing platforms with buyers and suppliers, Dynamic Discounting and 3rd party early payment services are now far superior to invoice finance services

Easy to use” solutions provides superior user experience, will have positive selection, better margins


Technique Description

Supply ChainFinance

Supply chain finance is an uncommitted credit facility typically with near investment grade corporations that rely on approved invoices to fund receivables.

Dynamic Discounting / SCF off of either a P2P network or built in-house

Discounts are offered on all invoices approved, opening up the entire procurement spend, based on a sliding scale.

Marketplace Models

Buyer sets APR return requirements and rate range and submits approved invoices for suppliers to bid for early pay. An example would Buyer set 5.5% as return target and tells supplier can bid between 4.5% to 7% but more likely to get accepted if rate bid is on high side.

Dynamic Credit Limits and Invoice Finance typically done on the back of a P2P Network + external data

Sellers offered dynamic credit limits and or invoice finance based on business flow on platform and off platform with a network.

Commercial cards – cards and Vcards

Small suppliers and low dollar invoices typically funded by a bank (e.g., U.S. Bank, Citibank), although changing with vcards, which can focus on bigger ticket B2B transactions, AP integration, and lower interchange.

Buyer FocusedModels

Buyer-Focused Invoice Finance Techniques


Ann

ual$

$$ S

pend

# Suppliers

High

Low

50 200 1,000’s

.

P-Cards, Discounting, and Factoring solutions for smaller vendors, typically indirect spend purchases

100

“Approved” Payable

Finance aimed here

Can programs move to Non Investment grade Companies? How big of a challenge is pledged receivables?

Supply Chain Finance (SCF) can be also used for high dollar amount trading partners

Can these early pay solutions move in this direction by offering more competitive rates?

Working Capital Automation, which involves suppliers bidding for a buyers cash to be paid early, can be limiting based on buyer’s cash position commitment.

Buyer Focused Early Pay Models & Supplier Segmentation


Currently Dominating the SCF Market

KEY SCF PROVIDERS

Investment Funds Backed by Insurance Companies, Pension Funds, etc.

Non-Financial or Hybrid Technology-Based Platforms

BANKS

Non-Banking Large Financial

Institutions

Technology Based SCF Providers


DSCF/EARLY PAYMENT APPROACH

High Growth Business Generation and Delivery Model

DSCF / EP Provider

E-Invoicing, P2P, S2P and Payment Platforms

Supplier Supplier Supplier Supplier Supplier Supplier

Buyer Buyer Buyer

Best Go 2 Market Approach

DSCF/Platform integration model: e-invoicing platform focusBusiness generation: Platform Level

Incr

easin

g sc

alab

ility

&

decr

easin

g ris

k pr

ofile

SCF/Reverse factoring model: Buyer focus Business generation: Buyer Level

“Classic” invoice finance/EP model: Supplier focus Business generation: Supplier Level


Logs in and requests

Early Payment or“Always pay early”

Change Payee to DSCF Company

Early Payment request

Payee change acknowledgement

DSCF: FULL INTEGRATION WITH E-INVOICING/DYNAMIC DISCOUNTING PLATFORMS

Invoice status updates (prebuild API; near real-time)E-invoicing PortalBuyer

Execute daily payment runon original due date

Payment sent to appropriate Payee (DSCF Company or Supplier) for original invoice amount on original due date (withremittance advice)

Payee change acknowledgement

EP Acceptance

EP paid confirmation

Supplier

Early Payment marketing

strategy email

EP statusupdate email

Early payment at agreed discount on agreed date

DSCF PROVIDER


THIRD PARTY EARLY PAYMENT VS DYNAMIC DISCOUNTINGCOMPETITION – PEACEFUL COEXISTENCE – PARTNERSHIP

Competition

Cooperation/Partnership

Parallel Service


RISK OF DILUTION: Why Does it Matter?

Any credit memo issued against non-

funded invoices

Credit Memos

Chargeback of any nature including

warranties

Chargebacks

Set-Off against invoices for Supplier’s unfulfilled obligations

Set-Offs

Counterclaims arising from any issues including government regulators, etc.

Counterclaims


On-Platform & Off-Platform Early Payments – a hybrid solution that un-encumbers assets is a better value proposition

Supplier’s invoices issued to the integrated Buyer represent

portion of its AR….

Partial Solution

Both Supplier and Buyer integrated through E-

Invoicing Platform

On-Platform

Issue with pledged ARPledged AR

Higher Supplier conversion with global solution…….

Marketing

Early payment solution for all invoices

Complete Solution

Additional compliance ….Compliance

Supplier invoices to other Buyers, which are not integrated with Platform

Off-Platform

Complete Solution


SOURCES OF CAPITAL FOR DSCF

International Institutional Investors with multi-currency and multi country capabilities Auto-Invest System

Marketplace Lending

Popular with a number of current SCF providersIt has its Pros and Cons

Securitization

Delivers lowest cost of capital but has enormous limitations Bank Senior Lines

Method which takes the best features from all above described approaches

Hybrid Funding


Data and Analytical Advantages

Predictive modeling of dilution, including NLP / ML

Segmentation and Funding for Unconfirmed Invoices

Artificial Intelligence (AI) client interaction and engagement

IOT / Blockchain enabled solutions

Q & AFind us at lunch --

Documents

IS DIGITAL SUPPLY CHAIN FINANCE POSITIONED TO TAKE OVER