Supply chains — and the suppliers that are the links in the chains — are ever more global in scope. And though eInvoicing is making payments more efficient that it has been (quantum leaps from the dark days of paper invoices and stamps), payments and cash flow still can be streamlined.
In a launch earlier this month, Aztec Exchange debuted PayMe, an invoice finance solution that lets eInvoicing firms offer suppliers early payment options. Through white-label and cloud-based interfaces, those eInvoicing firms — which, thus far, may not have had an early payments option — are now able to do so, with the ability to transact using mobile phones.
Aztec views PayMe as an alternative to traditional factoring. In an interview with PYMNTS, Edwin Hagan-Emmin, the firm’s CEO, stated that factoring in standard process has, at its heart, “recourse … where firms pledge the value of their invoice book,” or hard assets, in order to obtain financing.
In the case of PayMe, said the executive, “we acquire the invoice, we don’t lend the money against the invoice” and the counterparty risk is rather safely ensconced in relatively large corporates. Since it is the invoice itself that is acquired, noted Hagan-Emmin, Aztec, once it extends financing, is able to be geographically and even credit agnostic when it comes to suppliers, as financing is itself provided through large financial institutions. The CEO said that its partner network has an eInvoicing volume of more than $330 billion.
Invoice financing at this level, maintained Hagan-Emmin, opens up supply chain financing to even the smallest and most remote players in a given vertical. In one example he offered, Nestlé suppliers of coffee or cocoa — from, say, Ghana, Kenya or Ethiopia — can, as part of an early payments system, be funded quickly, even though some of those suppliers may be relatively underbanked. Working capital that is advanced comes through in a few days. Each invoice submitted for early payment is levied a discount charge and transaction fee.
Speaking generally, extending this early payment option to the supply chain allows firms such as Aztec to touch a greater proportion of suppliers than might be seen otherwise, as Hagan-Emmin stated that traditional banks and financial institutions will typically interact with the largest (and best capitalized and least risky) suppliers, heavily weighted at roughly 10 percent of a large corporate’s supplier roster.
Discussing the financing itself, Hagan-Emmin stated that capital comes from the establishment of a special purpose fund, with a mandate to purchase trade receivables with a duration of less than 180 days and with a guaranteed 5 percent yield. As such, banks and other large lenders might find interest piqued in returns from similar investment vehicles (without being hobbled by direct funding, which could be constrained by Basel III rules and which typically takes place in local markets).