Tuesday, 3 March 2015

Supply chain financing ... very few banks but a lot of buttons

Tuesday 3rd March 2015

Ariba is the biggest player in the e-invoicing market. According to its 17 February 2015 press release:
More than 1.7 million companies, including two-thirds of those on the 2014 Forbes Global 2000 list, are connected to Ariba Network. And a new company is added every 13 minutes. In 2014 alone, 200,000 selling organizations joined the network, where more than $700 billion in commerce is transacted on an annual basis.
Ariba is also tapping into the invoice discounting market. It's partnering with buyers to pay suppliers early. Supplier gets cash early. Buyer gets a better return than sight deposits. Ariba gets a cut. 
Ariba Discount Management and Dynamic Discounting offering
Source: www.ariba.com
It would seem that from $700 billion in invoice value, Ariba saw $10 billion of invoices discounted in one year; or 1.4%. 

From that $10 billion, Ariba's customers captured $150 million in discounts. This is not an insignificant sum but totals 1.5% of total discounted invoice value. That 1.5% looks like it went to the capital providers, i.e. the buyers. 

As the broker/platform/service provider, I reckon Ariba probably receives a lesser cut than the underlying capital provider. Most likely something in the order of 0.25% to 0.5%. Twenty five to fifty basis points on $10 billion in discounted invoice value equates to $25 million to $50 million (c. £16 to £32 million). 

Or put another way, Ariba's cut from early payment services might be something like 0.003% to 0.007% of the original $700 billion in invoice value flowing over its network.

Tungsten reported £117 billion in invoice value for 2014. You do the math.

Of course Ariba are not the only players in the market having a go at this invoice discounting malarkey. 
Basware Financing Services offering
Source: www.Basware.com
Taulia Dynamic Discounting offering
Source: www.Taulia.com
Tradeshift Early Payment offering
Source: www.tradeshift.com
Nipendo Supplier Financing solution
Source: www.nipendo.com
GT Nexus Supply Chain Finance offering
Source: www.gtnexus.com
Transcepta Supply Chain Finance and Dynamic Discounting offering
Source: www.transcepta.com
TradeRocket Early Payment offering
Source: www.traderocket.net
Direct Commerce Discount Management offering
Source: www.directcommerce.com
The list goes on ...

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog.

8 comments:

  1. Hi Matthew

    I am glad you are beginning to see the potential. In your previous post you estimated penetration of 15% of 9% (i.e. 1.35%) and here you point out that Ariba achieved 1.4% in their first year.

    Doing the maths – 1.4% of £117bn is about £1.6bn which would leave Tungsten with an interest margin of £8-12m. Not bad if they were to achieve this in the 1st year (personally I think it might take them more than a year to get to £1.6bn in advances).

    The real question is what could we reasonably project to happen to invoice flow and penetration in Years 2, 3, 4, 5 etc.?

    Invoice flow – contracts announced since IPO including GE and Siemens give line-of sight to c£250bn in invoice flow. Tungsten’s offering is clearly attractive to buyers as these are ‘huge wins’ – there is no reason to believe they won’t win a few more MNCs/Governments as clients.

    Discounting penetration – this is more of an ‘unknown’ but if Ariba can get to 1.4% in year 1 perhaps 3-5% might be achievable in a few years, with managements aim of 10% as a bit of a stretch.

    Using £250bn of invoice flow and 4% penetration we get to £10bn of advances and about £50-75m of interest margin to Tungsten, which makes a joke of the current MCap. Even assuming 1.4% penetration as the ‘ceiling’ we still get to £20m of NIM which carries the current MCap.

    Beyond the £10bn of advances through its Network, there is an additional financing opportunity open to Tungsten - The RNS on 22 December 2014, noted

    ‘the Company now has the technological capability to offer to finance the vast majority of approved-to-pay invoices to Suppliers, not just those received electronically on the Network’’

    I have no idea how much of this additional market they will end up financing (or frankly – how it will work), but there is significant potential for upside in lending from this statement….

    Best regards

    SAH

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