Spend Matters and Trade Financing Matters have both long argued that invoice-based discounting and payables and receivables financing programs are just the tip of the trade financing iceberg in terms of getting cash into the hands of suppliers more quickly. Granted, traditional financing arrangements, such factoring and letters of credit, are also available to supply chain participants to leverage access to cash faster based on paper-based visibility into procurement and trade documents, but often at higher cost than online models.
On Trade Financing Matters, my colleague David Gustin recently shared how GT Nexus is targeting purchase order-based financing, which in many ways represents the next frontier of tech-enabled trade financing programs. David suggests that GT Nexus, the world’s largest cloud-based business network for global trade, with over $100 billion of goods managed on the platform, is now offering purchase order finance.
“Through their data, their funding provider, asset manager Seabury TFX can assess historical performance and risk levels to incorporate details such as on time payments, late shipments, cancel orders, and chargebacks in their underwriting model,” David suggests.
“So what?” you might ask. Don’t factors and other lenders do this already?
Not this way.
“It’s a game changer for purchase order finance and lets suppliers get higher advance rates and better finance rates,” David says. “And because data is viewed by finance providers real-time, you can build in rules to allow them to do decisions a lot quicker.”
Moving up the value chain in trade financing beyond the invoice as a trigger mechanism requires a lot of things from a technical angle. These include:
- Visibility into network-based data, which requires visibility into significantly more systems data beyond an approved invoice
- A means to normalize this data, since it comes from a variety of transactional systems and many connectivity standards (cXML is as foreign to most ERP-type transactional data types as it was to indirect procurement before Ariba introduced it)
- Analytics to understand risk (such buyer-centric credit risk is not the only central element at play in terms of whether a supplier will ultimately receive payment, as with an approved invoice)
As GT Nexus drives liquidity and volume with purchase order-based financing initiatives, David and the entire Spend Matters team look forward to covering these developments in more detail in the coming weeks and months.
(Cross-posted @ Spend Matters)