NICK HEINZMANN, SpendMatters

– June 18, 2018

As general awareness about dynamic discounting and supply chain finance grows among practitioners, procurement groups are increasingly pushing their technology providers to offer early payment capabilities. These organizations are primarily seeking to strengthen their supply base, relieving the DPO stretch that has plagued small suppliers as of late while also improving their own working capital.

But while enthusiasm for such programs has grown with buying organizations and their technology providers, suppliers have been the reluctant missing piece to the early payment puzzle. To encourage the full spectrum of suppliers to fully adopt early payment, the parties offering these programs must team up explain the benefits in the supplier’s language, providing a seamless, flexible and fast experience that creates win-win scenarios for everyone involved.

1. A Seamless User Experience

Before addressing the more intricate financial aspects of early payment program adoption, procurement organizations and their technology providers must first consider the role user experience plays in introducing supply chain finance to suppliers.

Over the last several years, procurement technology providers have increasingly focused on delivering an improved user interfaces. They have done so because frontline users of such systems now desire a seamless enterprise software experience akin to the web-based interfaces they use in the consumer world.

The yardstick with which these users are measuring their technology is known as the GAFA standard, an acronym for Google, Amazon, Facebook and Apple. These four companies have created the benchmark for seamless digital experiences, offering ubiquitous platforms that facilitate a full end-to-end process for whatever the user may need.

For early payment programs, the supplier on-boarding process in particular is a common stumbling block. On-boarding, in its worst iterations, can be tedious and time-consuming, requiring users to set up an account filled out with many desperate pieces of information.

A more GAFA-like approach is to enable features such as click-through signup, according to George Shapiro, CEO and chairman of The Interface Financial Group, a provider of digital supply chain finance solutions. Shepherding users through the on-boarding process with minimal interaction allows them to embrace SCF features by preventing them from quitting at the outset.

“What suppliers are looking for in order align with early payment solutions is this level of quality in their customer journey,” Shapiro said. “And that’s why on-boarding and click-through sign up should be as close as possible to this GAFA standard.”

2. Flexible Functionality

Providing a seamless user experience is essential to prevent mishaps from derailing program adoption, but it not enough to ensure long-term success. That will require suppliers find appropriate and flexible functionality once they begin actually using the early payment solution.

Small suppliers, companies that have traditionally struggled to access early payment, provide one important example. Historically, only large suppliers have had the opportunity to access supply chain finance. Long-tail suppliers have been left to fend for themselves, relying on more traditional invoice financing methods like factoring or new funding through expensive services such as merchant cash advances (MCA).

Even though large procurement organizations are beginning to offer new payment options such as dynamic discounting, the value proposition in terms of time and effort to use such programs may not be compelling to the supplier. A large customer could reasonably represent only 5% of the supplier’s revenue, meaning beyond that one relationship the only options for early payment for other customers are non-digital solutions in the open market.

To make early payment truly valuable to the full spectrum of suppliers, solutions must support appropriate amounts of flexibility to make the early payment program workable. Suppliers should be able to use the early payment program when they want and how they want — allowing them to request only as much money as they need, for whichever invoices they want, as often or infrequently as they want it.

This level of flexibility is what Shapiro says is necessary to get all suppliers on board with supply chain finance. Where buying organizations and suppliers already have an established dynamic discounting program, IFG provides an extension of this program in the form of digital supply chain finance, which can cover all suppliers not already enrolled in dynamic discounting programs. When such a relationship does not already exist, however, IFG also offers what it calls an off-platform funding option, where it can provide capital in scenarios where both another customer and the supplier are not on the same P2P or e-invoicing platform.

Enabling early payment both on and off platform is key to encouraging large-scale supplier adoption, because it provides a more attractive option to suppliers in all working capital scenarios. No longer restricted to using dynamic discounting with only their largest customers, suppliers can choose digital supply chain finance as their first option for early payment, rather than needing to pledge their receivables to a third party.

3. Uber Speed

Finally, for the early payment processes to be truly attractive for all parties involved, buying organizations and technology providers must ensure that suppliers can trust the program is fast enough to relieve their working capital pain points as quickly as possible.

From a user experience perspective, the application itself should be fast. Are there wait times between steps in the workflow? Does the solution lag or take considerable time to process data and requests? If so, it could discourage suppliers from bothering to use it consistently.

Ideally, the process of requesting early payment should be akin to ordering a rideshare — one click, the algorithm matches you with payment and the funds are sent to your bank account with minimal delay. To create this Uber-like experience, early payment solutions will likely have to upend the traditional approach to funding that places banks between buyers and suppliers.

Banks fall short in this role because they slow down the funding process with additional communication and underwriting requirements. For a supplier facing extended payment terms and shrinking working capital, these delays are a major impediment to embracing early payment solutions.

Just as rideshare apps allow users to press a button and summon a car to their location, an early payment solution that has long-term staying power with suppliers should provide access to funding at the click of a button.

This is how IFG’s Shapiro approaches bridging the gap between buyers and suppliers, by integrating with technology providers during the P2P process. To ensure it can mitigate the risks associated with funding early payment, IFG’s decision engine performs millisecond-level analysis and produces dynamic credit limits associated with prediction of post-conformation dilution. These analyses allow IFG to quickly provide working capital flexibility to both sides, as well as offer payment of the date of the business’ choice.

“You check the invoices you’d like, a calendar pops up, you select the dates you want, you click submit and that’s it. There is nothing else to do,” Shapiro says.

Ultimately, improving working capital is a proposition all companies can get behind. With common hurdles like clunky user experiences, inflexible payment options and funding delays alleviated, buying organizations and their technology partners can improve early payment programs, helping to put these offerings in the language of the suppliers and encourage adoption throughout the supply chain.