Greensill Capital

Ilkka Tales

I’m sitting on the beach enjoying my festive season break, gazing out past the breaking surf contemplating what lies ahead for the CIO, CXO and CEO in coming years.  An old topic bubbles to the surface, one that I have seen many CIO’s, CPO’s and CFO’s in the largest of Global Multinationals turn their minds to in recent years.

The idea of e-invoicing is not new; most of you have dabbled in it over the past 30 years, with relatively few connections built between the largest organizations and their biggest suppliers. We have seen a recent resurgence in e-invoicing in Europe and North America where Governments have mandated B2G e-invoicing by 2018. Whilst this is a start, what excites me the most about e-invoicing is the fiscal business case . And, it is for this reason alone e-invoiving will rise to the top of the decision tree for CEO’s and boards across APAC.

The business case for e-invoicing and P2P systems has moved past a cost based decision to a revenue and working capital management decision with the development of innovative Supply Chain Finance (SCF) solutions. SCF was developed in Spain a couple of decades ago where suppliers are paid on invoice approval by a Financial Institution (FI) who extract an early settlement discount from the supplier and the Customer then pays the FI on the invoice due date. The FI makes money arbitraging the difference between the cost of funds for the larger Customer against that of the smaller suppliers.

"This CSR focused approach delivers a win-win to all."

With P2P and e-invoicing platforms enabling earlier invoice approval times for the larger corporate customers, the FI is able to fund the supplier invoices earlier. Most sophisticated FI’s share the discount that they can achieve from the supplier with the customer, thus funding the cost of implementing the P2P and e-invoicing platform in months not years. As an example, lets take a quick look at Singapore Telecom. The following numbers are based on SingTel’s current published accounts as at Sept 16 .In the last three years SingTel pushed trading terms with suppliers out from 93 days to 134 days. Their accounts payable has increased by SGD1.5BN, from SGD2.8BN to 4.3BN. SingTel’s cost of debt is 3.6%. By pushing out trading terms and increasing working capital SingTel have saved SGD54MM in interest expense per annum. (3.6% x 1.5BN).

Achieving what SingTel did is a tough ask on any CPO without the right tools. You can mandate extended trading terms for all suppliers, which is what Rio Tinto did in early 2016,but only to reverse its decision due to the negative media and Governmental response.  Not the best way to achieve this outcome, especially during an era of Corporate Social Responsibility (CSR). A more subtle and productive approach is to engage a broader supplier based approach encompassing a P2P platform with e-invoicing at its core, with a SCF program funding early settlement of all supplier invoices.  This approach is self funding, when the FI shares the margin it achieves from paying suppliers early for their invoice.

This CSR focused approach delivers a win-win to all. A win to the customer as they have increased working capital at no cost, a win to the suppliers as they have received funds on invoice approval. The losers in this supply chain are the banks that fund the suppliers at a higher cost. A small price to pay for the delivery of a P2P strategy that strengthens supplier relationships and that delivers significant fiscal gains to the customer.

The business case for P2P platforms incorporating SCF just got a whole lot more interesting as the conversation turns to revenue and working capital improvements that fund the cost of implementation.

Incorporated in 2011, Greensill Capital is a financial services and principal investor firm. The Company is headquartered in London with regional offices in NYC & in Sydney, Australia.