There is a revolution starting to happen in supply chain finance (SCF). What was previously an elitist programme between businesses, global banks and the very largest suppliers, is shortly to become a democratised process between a business and all of their suppliers because of what e-invoicing brings to the party.
Initially, SCF was a bank-led initiative that was developed in order to help large multinational corporations improve their working capital KPIs. For these large companies, it worked well within this narrow remit. However, the solution has always promised so much more, and in this format the benefits were limited, in so far as that it would only work for a company’s top 25 to 100 suppliers. This was primarily due to the regulatory constraints on the banks – as the providers of the SCF programme – surrounding KYC, anti-money laundering and also in more recent times Basel III. The on-boarding process with suppliers was therefore very arduous, and the costs outweighed the benefits when companies were looking to on-board all but the very largest suppliers onto their SCF programme.
The new generation of SaaS based e-invoicing platforms, however, are game changers as they approach the subject from a very different perspective. These providers approach SCF and e-invoicing from a supplier-adoption approach, where the most important aspect is getting as many suppliers on the platform as possible. This is vital because without a critical mass of suppliers using an e-invoicing platform to send, receive, and process invoices, a business doesn’t have a viable project. The ‘DNA’ of these SaaS-based vendors is therefore driven by this supplier adoption approach.
Traditionally the benefits of using an e-invoicing solution include increased automation, accuracy and efficiency. It is a useful tool to improve a business’s accounts payable processes. However, it is not a game changer in this guise. Where e-invoicing starts to get really exciting is when it’s used to enable and underpin a dynamic and electronic trading relationship between a business and its suppliers. The core feature of e-invoicing is that it connects a business with the majority or all of its suppliers. This network can then be used to offer early payments to these suppliers.
How so? This can either be through utilising excess liquidity or, if the working capital position is sensitive, through the injection of third-party financing – what was previously known as Supply Chain Finance. And because the goal of an e-invoicing network is to connect a business with all of its suppliers, financing opportunities are now available to the whole supply chain, not just the top 25-100 largest suppliers.
The primary benefit, therefore, from such a solution is that it resets the relationship between a company and its suppliers, allowing corporates to strategically approach the management of their supply chain. For example, a company can utilise the strength of its credit rating to offer third-party affordable financing to all its suppliers, thereby strengthening the health of a supply chain. Or the treasury function can utilise excess liquidity to fund early payment in exchange for a discount, reducing a company’s Cost of Goods Sold (COGS). From a treasury perspective, this offers an opportunity to step beyond its usual remit and be involved more deeply in the strategic goals of the organisation. Of course, using a SaaS service offers corporates other operational benefits through using the cloud, including: full visibility, real-time information, quick on-boarding and set-up, enhanced security, cost savings on resources and continually updated software.
The SCF and e-invoicing space is one that is constantly evolving and the current incarnation of SaaS providers have removed all of the barriers that have historically prevented widespread adoption. There are other exciting developments in this space that providers like ourselves are beginning to realise surrounding the use of big data. There are now years of supplier trading history on a provider’s servers and by using analytical tools built into the platforms this can be analysed, looking at areas such as risk and credit worthiness. This creates a powerful analytics suite that can allow corporates to model scenarios based on what suppliers have been doing and are likely to do.
All in all, the benefits of e-invoicing and SCF are becoming increasingly strategic and vital to corporates – creating a very attractive solution.