As Andrew often says, “if cash is king, managing it well is aces.” For decades, managing cash was the responsibility of the Treasury department of most large companies. Today, while that is still the case, more business functions and employees are making a positive impact in this regard. This is particularly true of Chief Procurement Officers and their departments and for Controllers and others who often oversee accounts payable.
Not only are more business functions getting involved, but in the present business environment, an increasing number of enterprises are looking to implement working capital optimization strategies in order to improve balance sheets as well as fund investments and fuel growth. Accounts payable (“AP”) represents one of the main opportunities to optimize working capital. One area of focus is in managing vendor or suppllier payments and the use of dynamic discounting.
Although providers such as Ariba do offer this capability, over the last 5 years this market has attracted some new entrants and they have gained significant traction within a fairly short period of time. In this series I will focus on a few of the ‘newer’ technology providers in this space and their solutions around dynamic discounting – a group I call the “Dynamic Trio”
As the heading above tells you, today’s focus will be on Tradeshift, which I’ve covered before on the pages of CPO Rising (Tradeshift: Newcomer, No More). This discussion will provide some insights in to their recently announced dynamic discounting functionality including an innovative factoring business to help ease lending to SMEs.
As many of our readers may already know, Tradeshift started off as an eInvoicing network but has grown into much more than that today. eInvoicing was a great way to bring trading partners together on the same platform (The Tradeshift Platform), but for Tradeshift that was only step one. Once buyers and suppliers are connected on the platform they are able to transact, communicate and interact in multiple ways. From eInvoicing to CloudScan to the multiple Tradeshift Apps, the platform offers a whole host of tools that add value to businesses on the network and help them improve their business processes.
The latest addition to the platform is Dynamic Discounting. Suppliers that are already on the Tradeshift network can be invited to participate in dynamic discounting by their customers. Those that are not on the network can decide whether they want to participate in future dynamic discounting opportunities during their enrollment process. Once a supplier opts-in, the buying organization receives notification and can define a specific agreement for that supplier. The agreement is easy to create and includes parameters such as start/end dates and the funding rate. Once received the supplier views the terms of the agreement via an interactive chart that helps the supplier easily understand how the discount rate changes as the original due date comes closer. If all is agreeable the supplier accepts the offer with a click.
In order to monitor the discounting activities, the supplier has a dashboard that shows various metrics such as number of invoices paid early, total amount paid early, average days paid early, etc. Similarly, the buyer has access to complete reporting and analytics around early payments.
Tradeshift works with any ERP system and communicates discount information back and forth with the ERP system unlike Taulia which deeply integrates with SAP and changes the financial information (e.g., invoice due date) within SAP.
No Cash? No Worries
What happens when a business doesn’t have any excess cash or wants to invest it elsewhere? The answer is third-party funding (or factoring). In September 2013, Tradeshift announced a partnership with CapitalAid. Together they are launching a $3bn factoring business within the Tradeshift platform primarily targeted at SME’s in the UK and EU. This means instant payments and access to cash for SMEs using Tradeshift. The CaptialAid fund will be embedded within the Tradeshift platform. Utilizing the data generated by transactions between trading partners, CapitalAid will conduct real-time credit analysis and make lending decisions at aggressive rates.
And, speaking of cash, in May 2011, Tradeshift raised $7 million from Notion Capital and later in the year raised a further $17 million from ru-Net and Kite Ventures and Notion Capital.