tomorrow’s transactions today

Feasibility Study SME FinancingImproving financing through standardised exchange of invoice payment status

Douwe Lycklama, Mounaim Cortet

2 Improving invoice financing. Douwe Lycklama, Mounaim Cortet – 31 October 2014. © Innopay BV. All rights reserved.

Finance gap: how to finance ‘long-tail of suppliers’ with ‘low value invoices’?

Avg

. an

nu

al s

pe

nd

(in

voic

e v

alu

e)

# suppliers

Low

High

Low High

Supplier finance: Reverse factoring / Confirming• Corporate driven, bank operated

programs• Focus on ‘strategic suppliers’• SCF providers enter market (w/ also focus

on SME)

Receivables finance: Factoring / Asset-Based Finance (ABF)• Supplier driven• Traditional instruments (factoring, ABP) center

on risk mgt, driving costs • E-invoicing service providers extend

proposition with ‘early payment’ services• ‘Longtail’ still largely underserved

Supplier landscape and available financing instruments (non-exhausitive)

3 Improving invoice financing. Douwe Lycklama, Mounaim Cortet – 31 October 2014. © Innopay BV. All rights reserved.

Corporate(investment grade)

Large SMEIndependent

contractor

Corporate(investmentGrade)

N/ASupplier able to

arrange own financing at low

rate

Large

SME N/A Arbitrage not possible.

Buyer too small for unsecured credit facility

IndependentContractor

Focus M3 study (‘longtail’, 80%)

Focus existing SCF programs (‘strategic suppliers only’, 20%)

Extending our perspective towards ‘large and SME buyers’ and their suppliers

Supplier

Bu

yer

Reverse factoring alone is not enough to tap into the whole SME market

Focu

s of

stud

y

4 Improving invoice financing. Douwe Lycklama, Mounaim Cortet – 31 October 2014. © Innopay BV. All rights reserved.

Long-term vision on SME receivables financing

What is it about?

• Improve financeability of invoices through standardization of invoice status information*

• Share invoice status information electronically in ‘trusted network’ (four-corner model)

• Decouple ‘onboarding’ (KYC) and ‘financing’ from the Buyer side

• Unlock market of large/SME buyers and their longtail suppliers for STP financing

• Enable different financiers to tap into SME market (banks, factors, ‘alternatives’)

How to realize?• Standardize invoice status information• Standardize exchange via four-corner model: extend ‘Simplerinvoicing’ network towards

‘Simplerfinance’ network• Enable financiers to have access to invoice status data (directly via API or indirect)

Why standardization?

• More insight in ‘quality’ of receivable invoices

• Better risk assessment (reduce information assymetry gap)

• Automated and cost effective SME financing

Availability of invoice status information is key enabler of innovation in receivables financing

* Status information should ultimately encompass various ‘risk’ information ranging from simple message by the buyer that invoice has been received to a ‘guarenteed payment’ of the invoice on date x. Part of this feasibility study is to assess what status information is relevant from a risk management and financing perspective.

5 Improving invoice financing. Douwe Lycklama, Mounaim Cortet – 31 October 2014. © Innopay BV. All rights reserved.

Develop standards suite for exchange of invoice status information in four-corner modelStandardizing invoice status information and its exchange will unlock the SME market

Financier Supplier Buyer

Status Broker

Trade7

1

2

3

4Electronic invoice

Invoice approval

Finance request

Status information broadcast5

Status information broadcast

5

6

Receivables Finance Model

Finance Exchange Status Aggregator

5

6

Pre-payment (‘deal closure’)7

46

Four-corner model

1 2

3

1

1

Acceptance

Existing ERP/invoicing solution

Existing ERP/invoicing solution

Existing ERP/invoicing solution

Existing ERP/invoicing solution

6 Improving invoice financing. Douwe Lycklama, Mounaim Cortet – 31 October 2014. © Innopay BV. All rights reserved.

Financier Supplier Buyer

Status Broker

Trade7

1

2

3

4Electronic invoice

Invoice approval

Finance request

Status information broadcast5

Status information broadcast

5

6

Receivables Finance Model

Finance Exchange Status Aggregator

5

6

Pre-payment (‘deal closure’)7

46

Four-corner model

1 2

3

1

1

Acceptance

Existing ERP/invoicing solution

Existing ERP/invoicing solution

Existing ERP/invoicing solution

Existing ERP/invoicing solution

Different financing use-cases can be distinguishedAvailability of invoice status information is a key driver to improve financeability of invoices

2

7 Improving invoice financing. Douwe Lycklama, Mounaim Cortet – 31 October 2014. © Innopay BV. All rights reserved.

Customer journey from a supplier perspectiveEnabling a One-Click Finance experience

8 Improving invoice financing. Douwe Lycklama, Mounaim Cortet – 31 October 2014. © Innopay BV. All rights reserved.

Relevant stakeholders recognize the potential of this model for easier SME financing

Banks

Industry organizations Platform providers

Buyers Platform providers

Interviews executed so far Next interviews

ERP/Accounting software

E-invoicing service providers

Factoring companies

9 Improving invoice financing. Douwe Lycklama, Mounaim Cortet – 31 October 2014. © Innopay BV. All rights reserved.

What do you think?

1. What invoice status information should be standardized to improve the financeability of receivable invoices?

2. What risks are reduced by this invoice status information (fraud, dillution, counter party, ...)?

3. Is there financial value and for which parties?

4. What are the main challenges of the long-term model?

5. ...

Key discussion points

tomorrow’s transactions today

Thank you

Douwe Lycklama, douwe.lycklama@innopay.com, +31 6 557 111 50

Mounaim Cortet, mounaim.cortet@innopay.com, +31 6 417 686 51

For your attention