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
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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
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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
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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
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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
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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
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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
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THIRD PARTY EARLY PAYMENT VS DYNAMIC DISCOUNTINGCOMPETITION – PEACEFUL COEXISTENCE – PARTNERSHIP
Competition
Cooperation/Partnership
Parallel Service
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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
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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
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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
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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 --