Trade & Supply Chain

Invoice financing reimagined

Published: Jan 2017
Kush Patel, CEO and Co-Founder, Tallysticks

In the first of our new series profiling some of the world’s most exciting fintech companies we speak to Kush Patel, CEO and Co-Founder at Tallysticks to hear how the company is looking to transform the trade finance space with blockchain and smart contacts.

Kush Patel

CEO and Co-Founder

Tell us a bit about yourself and your background. How did you get into fintech?

I began my career in finance and I got into a fintech because of Tallysticks. Specifically, after a successful career on Wall Street as an emerging markets strategist, and as a diplomat with the US Government, I decided to venture out on my own. I have start-up experience in a range of industries, including: investments, pharmaceuticals and, now, financial technology. According to a few, I’m an outside-the-box thinker with a talent for crafting efficient business strategies.

Where did the idea for your company come from?

The idea started with simply matching a payment to an invoice. In other words, it was to be an invoicing solution on the blockchain. Then a major European bank asked if we ever thought about integrating an invoice financing solution with our invoicing platform. We designed and presented the process flow a week later. With positive interest from the bank, we built a light solution. Meanwhile, we were asked to enter a hackathon which was sponsored by Barclays. Between winning the hackathon with our invoice financing app and getting there through our own merit, we ended up in the finals of the Barclays Techstars Accelerator programme. That, of course, sent us on our way.

What makes fintech such an exciting space and what do you find most interesting about it?

Banking is an industry in transformation, a change that was brought about with the 2008/2009 financial crisis. Having previously worked with financial markets, I’ve learned that any time there is turmoil, there is an opportunity. As a result, I wouldn’t want to be anywhere other than in the front-seat of a fintech company during this period of revolution.

Banks, of course, are friends to the fintech community, but they remain too slow to adapt to the rapidly innovating financial technology landscape. As a result, fintech companies are being forced (in part by investor demands) to go it on their own and build robust proprietary platforms. Eventually, the circumstance will be such that banks will find it cheaper to outsource various services to the fintech companies than continue to operate them in-house.

Think of how Amazon disrupted retailers. Post the crash, bricks and mortar retailers built online stores, thinking that they timed their strategy correctly. In truth, they didn’t understand how to leverage their online presence to reduce the existing cost overheads or simultaneously offer better service with things like home delivery.

Today, with Amazon eating into retailer profits, retailers are looking to leverage Amazon’s site and infrastructure to service customers. Similarly, various payment, lending, and even account management platforms are beginning to create global frameworks, or marketplaces in the case of lenders.

So eventually, much like with retailers, it will be cheaper for banks to plug into those platforms than to continue offering those services with legacy in-house systems. Put differently, banks will channel their customers directly to outsourced platforms through white-labelled interfaces and in some cases even provide the supporting compliance buffer as well as balance sheet.

What are the challenges for fintech currently?

Banks remain too slow to adopt innovative fintech solutions or work with fintech companies. In part, this is because banks are saddled with legacy systems and are afraid of disrupting peers or cannibalising their own profits.

As a result, fintech companies are starting to ignore the banks and sell their solutions directly to corporates: we included. Eventually, banks will take notice. Whether banks respond in time for fintech companies to agree to work with banks will be a question best answered by time, however.

A dynamic offering

Tallysticks is an invoicing software solution that leverages the functionality of blockchain to share a common record of immutable invoice-related data for all parties to transparently edit and update. The shared information thread, together with software automation can help to streamline the purchase order-to-invoice-to-payment workflow processes.

Due to its invoice-related focus and nature of the underlying technology, Tallysticks sees itself as an ideal solution for multi-party interactive workflows such as post-trade settlement of OTC commodity trades and more relevant, dynamic discounting of invoices.

Plugging the funding gap

The main challenge that the solution aims to solve is the US$2trn SME funding gap that largely results from a working capital shortfall. “SMEs account for over 60% of all employment and nearly 60% of GDP output,” highlights Patel. “Yet SMEs receive less than 30% of all lending.”

In Patel’s view, this funding gap exists because of the mismatch in payment cycles between large corporates and SMEs. “Large corporates pay bills on 90-day payment cycles and SMEs are often required to pay bills on 30-day payment cycles, sometimes even less,” he explains. “As a result, SMEs supplying to corporates are net 60 days short in terms of cash flows.”

Diagram 1: How it works

Diagram 1: How it works

Source: Tallysticks

The banks have looked to address this need through invoice financing solutions. Typically banks offer financing directly to the supplier in the expectation that the buyer will pay the invoice. “This requires three parties to engage in the transaction – the lender, the borrower (the supplier) and the debtor (the buyer),” says Patel. “With three different parties involved – one of which has no vested interest in the arrangement between the other two, traditional invoice financing is clumsy. To manage the risk of this three-party transaction, banks impose harsh measures on borrowers which SMEs don’t like and so, they turn down the capital they desperately need.”

It is ensuring that SMEs are able to access this capital that the Tallystick’s solution looks to solve. “In contrast to traditional bank invoice financing, Tallysticks offers financing to suppliers via the buyer through an invoice portal,” outlines Patel. “This is called dynamic discounting and is much more efficient than supplier finance because the borrower and the debtor are the same party.”

Blockchain: a game changer

Patel notes that dynamic discounting is offered by a few other software platforms. What he believes makes the Tallysticks solution stand out, however, is that it is underpinned by blockchain technology. This enables businesses to potentially borrow through a marketplace at more affordable rates with a high degree of automation.

“More specifically, since reducing cost is the goal of any marketplace, the aim of our marketplace is to reduce the cost of capital,” he adds. “With our marketplace SMEs are able to access capital at lower rates with flexible financing terms whilst companies using dynamic discounting can expect to earn a healthy risk-free rate of return.”

Tallysticks are already in discussions with several corporates about deploying the solution and the invoice financing solution will be ready in Q317 with financing initially offered through a special purpose vehicle. The corporate treasury dynamic discounting solution should also be ready around the same time with the invoice financing marketplace operational in 2018.

“As long as we deliver our vision, help corporates achieve a better return on equity, offer a more stable supply chain, a streamlined payables process, a simplified supplier management process and more efficient invoice capture, I believe corporate treasurers and corporate finance departments should be quite interested and pleased with our solution,” concludes Patel.

Company timeline

  1. July 2015
    The idea to connect invoicing to blockchain is born.
  2. September 2015
    System design and development ramps up.
  3. October 2015
    Tallysticks announced at Rise New York. POC completed and Techstars application submitted.
  4. November 2015
    A major continental bank contacts Tallysticks to build a blockchain-based supply chain finance solution. Tallysticks later integrates the solution to a mobile payments API to win the Barclays hackathon.
  5. December 2015
    Filed four patented processes, including automated custodial transfer and automated transaction settlement. Tallysticks selected into the Barclays Accelerator powered by Techstars from a pool of nearly 700.
  6. January 2016
    The company completes its first round of funding with investors valuing the company at more than £1m.
  7. April 2016
    Tallysticks gets voted to be a top 100 European Fintech start-up.
  8. September 2016The company gets chosen to participate as one of only six start-ups in the EY Start-up Challenge in October 2016.


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