This week, the great and the good from the world of supply chain finance, factoring, invoice finance and invoice discounting convened at the annual BCR Receivables Finance Conference in Madrid.
As could have been expected, there was a consensus among delegates that the International Chamber of Commerce urgently needs to complete its work on standardising the terms used by the industry, with much confusion surrounding the wide-ranging terminology used by the market currently.
Nevertheless, the event certainly raised many interesting points, bringing together established banks, alternative finance providers and a number of corporates to share their experiences.
Particularly compelling was how some large companies described their requirements when selecting firms for financing their receivables. Some of the consistent messages conveyed were that receivables finance is fundamentally a great way to manage working capital and that it is – and should be – used as a cash flow management tool to replace corporate debt. Further prerequisites included the need for receivables finance to be non-recourse, at 100% advance rate, off balance sheet and to be both predictable and ever present.
Seeing these points listed repeatedly in presentations made me think we are on the right track with Tungsten – they describe our Tungsten Early Payment solution perfectly.
It was also apparent that there are real differences in European versus North American approaches to buyer-led initiatives. Dynamic discounting – where the corporate buyer uses its own funds to offer its suppliers discounts if they are paid early – is still popular in the US, but is not considered an attractive solution by European firms, who are more concerned about the cost and complexity of establishing these programmes, as well as the unpredictable nature of available funds. Providing a robust and permanent solution for the suppliers to handle swings in the economy (assuming longer payment terms) is the key driver of supply chain finance in Europe as we stand.
There was much talk about, and plenty of interest in the “innovators” – represented by the new alternative platforms, such as Tungsten. However, I did not sense a great deal of innovation amongst the established operators. This made a comment by one of the speakers feel somewhat pertinent:
You meet three types of people in business:
- Those who watch things happen
- Those who make things happen, and
- Those who wonder what the heck happened?
I think that applies to businesses as much as people.