Category Archives: Finance

Supplier Innovation Can Bridge Finance and Suppliers, but Reverse Financing is Not Supplier Innovation!

Reverse factoring is definitely a finance innovation, especially when many finance departments still think squeezing the supplier on margin is a good thing, but it’s a buyer(-led) innovation (and one sophisticated buyers should be implementing). Needless to say I was hoping for more creative insights when I checked out this recent piece on Procurement Leaders that purported to be on “Supplier Innovation – A Bridge Between Finance and Suppliers”. Something on how the supplier’s involvement in NPD/NPI, process re-engineering, or product standardization efforts and its effect on finance would have definitely been preferred.

There are a large number of ways true supplier innovation can benefit finance which include, but are not limited to:

  • Production Process Redesign
    The supplier could utilize a solution such as aPriori‘s Enterprise Product Costing Platform with appropriately configured VPEs (Virtual Production Environments) to suggest alternate fabrication methods that could cut the cost of the part in half or more!
  • Material Substitution or Component Redesign
    Design locks in as much of 80% of the cost — maybe the supplier can identify alternate materials or design changes before the first part is produced that can deliver the same quality and reliability but yet reduce cost.
  • Deployment of Modern Punch-Out and Invoicing Solutions
    Nothing is more annoying then trying to integrate a supplier catalog that is still exported in an archaic FoxPro format on a weekly basis to an old-school FTP site into your modern e-Procurement platform or OCR and auto-correct invoices still delivered as fax into your modern invoice automation solution. A supplier that adopts state of the art CRM technology that plugs and plays with your system often does more for finance than anything you can do.
  • SaaS Information Management
    As per a recent Gartner study, a Billion Dollar company spends 1,000 hours every week managing suppliers and their information. This time is primarily spent on data entry and maintenance, contact requests for updated data, compliance monitoring, performance monitoring, accounts payable and invoice verification. At least one-quarter to one-half of this time is spent on supplier information management alone, which is the equivalent of 6 to 8 FTEs (Full Time Employees) for this one billion dollar company. A supplier that kept the information required by their buyers up-to-date in a central repository that could be easily accessed and read into standard Procurement SIM/SRM systems would be doing a big service to their customers and considerably decrease the buyer’s overhead costs, making the buyer’s finance department quite happy.
  • Fine-Grained Bid Information
    The buyer’s cost depends not only on what the supplier produces, but where it produces, what the inbound and outbound shipping costs are, and how much the supplier pays for raw materials. A supplier who provides fine-grained (should) cost data in detailed cost models helps the buyer decide what locations are most cost-effective for it, whether it should be buying raw materials on behalf of the supplier (and use its negotiating power), and who should be financing what for lowest overall supply chain cost.

These are just a few of the ways that suppliers can innovate a bridge between themselves and the buyer’s finance department. There are others. The point is, innovation is not limited to reverse factoring, which should not even be initiated by the supplier!

Will 2014 Be the Year the SEC Kills Crowdfunding? And Innovation With It?

According to a recent article over on VentureBeat, it might cost you $39K to crowd fund $100K under the SEC’s new rules. On October 23, 2013, the SEC Issued its Proposal on Crowdfunding, available as a 585 page PDF, that, if passed, could put an end to crowd-funding, and even innovation, as we know it.

According to the VentureBeat article, the (proposed) legislation requires that the selling of crowd-funded securities take place on registered websites, which doesn’t sound too bad, until you also add in that these websites (which must be registered with the SEC and FINRA), must also provide investors access to a business plan, a detailed breakdown of the planned use of the proceeds, a company valuation, and financials. And already the problems begin.

If you look at the average Kickstarter campaign, it is to create something new, through a new endeavour, which has no financials, no company valuation, and no business plan beyond we plan to build this, in this way, and our production estimates are that it will cost this much. In the end, we will deliver X to you, or to the community. The business may or may not go on once the product is completed (and delivered). Moreover, these efforts are typically put together by the innovators themselves, who have expertise in creation and production, not writing business plans that have to include sections on marketing, sales, financial projections, etc. etc. Who’s going to write this plan? Create the (potentially ludicrous) financial projections? Provide, and take responsibility for, a valuation of a company or product that doesn’t exist?

But this is just the beginning. If the event (intends to) raise(s) 100,000 or more, in addition to providing potential investors with tax returns for the most recent tax year, the firm also has to provide investors with audited financial statements (before the offering and audited tax returns after the disposition of the funds). CPAs (Certified Public Accountants) are not cheap!

In addition, a crowd-funding campaign has to pay the registered website a success fee (calculated as a percentage of proceeds) for facilitating the transaction, compliance costs related to the preparation and filing of individual forms related to the crowd-funding offer both before and after the campaign, and additional fees to third parties whose help it will need to complete the financial (projections), business plan, and obtain a market valuation.

All told, the SEC estimates portal and compliance fees will eat up between 12.9% and 39% of the money raised, but, depending on what the fees turn out to be, and how much help the inventors and creators need to satisfy all of this bureaucratic BS, the costs could conceivably reach 50% of the proceeds, or more!

What is the SEC thinking? If a bunch of educated and reasonably well-informed people want to risk throwing $5 to $5000 of their disposable income behind someone who is willing to take a chance and try to do something new, what’s wrong with that? Innovation is what made North America, and without continued innovation, North America is going to be in big trouble. GDP growth is nominal, unemployment is high, and China owns too much of our debt. We need to be encouraging innovation, not discouraging it.

And while the SEC is spending time and effort writing 585 pages of rules to govern amounts of money that are minuscule in the grand scheme of things, hedge fund managers and investment banks that can crash the market and tank our economy literally overnight run free and get rich at our expense. (And SI agrees, the bank ain’t gonna help you.)

SI isn’t saying that there shouldn’t be some regulations around crowd-funding, as you do want some protections for the common man, but they should be reasonable and minimal. For example, maybe crowd-funding regulations should allow for unregulated crowd-funding events which could be:

  • limited to a maximum raise of 999,999,
  • limited to a maximum investment of 9,999 per investor, and
  • limited to registered platforms
    (that can register for free and decide whether or not they want a cut of the money raised with a 2% limit).

With the exception of (big studio-quality) movies *, most of the crowd-funding efforts are for initial product or idea development, and most of them are looking for (well) under 1,000,000, which is the number where you are looking to build a real company and would, presumably, be far enough along where you could bring in (super) Angel and VC funding.

In SI’s view, the individuals and small teams behind the efforts should be left alone and given a chance to innovate. Some may fail, but that’s okay. The point is that most will succeed, and anyone who is going to invest in crowd-funding understands that innovation is fraught with risk and that sometimes success only happens with grass-roots effort.

If you also agree, your chance to provide the SEC with your views expires in two weeks on January 21, 2014! SI encourages you to Submit Your Comment through this link today! Please save crowd-funding! We need every ounce of innovation we can produce!

 

* These should have their own class of exemptions. You might want some accountability due to the large amount of money that can be involved, but certainly nowhere near the levels that traditional investments of this size require.

Are You Losing 2% of Your Revenue to Fraud? Are You Sure?

Between two thirds and three quarters of organizations experience fraud every year and the average organization affected by fraud loses 2.0% of revenue in the UK and EU and 1.7% in the US. This means that, even if your organization is not aware of fraud, there’s still a 66%, or more, chance that it is being defrauded. And it should know for sure, one way or the other. Because if fraud isn’t detected, dealt with, and discouraged quickly, you end up with headlines like this:

  • Alibaba.com CEO And COO out because of vendor fraud
    involving over 2,000 suppliers and 100 staff members
  • Former Vodafone employee facing fraud charges
    for the fraudulent requisition of €2.3 million of services
  • The great Sainsbury’s potato fraud:
    Jail for vegetable buyer who took £5 million in bribes

Which all have one thing in common — each of these frauds involved the payment of millions of dollars to fake suppliers. Not over billings, not duplicate billings, fake billings from fake suppliers. A situation that can easily be prevented with a good supplier information management or supplier visibility system that validated the accuracy of the supplier information and the legitimacy of the supplier. If the supplier information management and visibility system cannot validate the existence and legitimacy of the supplier, then AP knows that a detailed manual investigation should be undertaken before the supplier is authorized to submit invoices, and that such authorization should require at least two sign-offs by high-level personnel. This simple process, which is yet another example of the value of supply chain visibility, would prevent fraudulent invoices from non-legitimate suppliers from ever getting in the system and greatly decrease the organization’s exposure to fraud.

And this is only one example of the many types of savings opportunities that good Supply Chain Visibility can bring your organization. For a deeper insight into the other ways in which Supply Chain Visibility can bring your organization recurring year-over-year savings, download SI’s latest white-paper on The ROI of Supply Chain Resiliency: It’s More Than You Think, sponsored by Resilinc. You might be surprised at just how much hidden value you can extract from your Supply Management operations with good visibility and resiliency.

Basware: P2P for the Global “E”

Basware is one of the largest players in the global procurement arena. Founded in 1985 in Espoo, Finland (as Baltic Accounting Systems) to deliver enterprise finance software solutions, the company (which is now public and traded on the NASDAQ OMX Helsinki Ltd. as BAS1V) has grown from a small country player to a global platform with over 2,000 international P2P customers that collectively do business with almost 1 Million companies in over 100 countries. Basware supports its global customer base through its operational footprint that spans over 50 countries on 6 continents and includes over 100 partners and resellers.

It’s solutions span the entire P2P (purchase to pay) process, from requisition through payment and post-transaction analysis and includes the Basware Commerce Network that enables over 425 Billion of e-commerce annually. The network currently lists 1.9 Million suppliers and processes over 60 million e-invoices annually through the 60+ e-invoice formats it currently supports, including XML, EDI, and Virtual Printer formats. The network is growing and transaction growth is currently running at 60% year-over-year, and now that they have partnered with MasterCard to provide their customers access to MasterCard’s suite of payment products, it is likely that network growth will accelerate even more now that customers have even more payment options.

One of the most unique features of the platform is the fact that it spans the full AP and P2P cycles, whereas many of the smaller P2P and e-Procurement platforms are Procurement centric, with little support for AP. However, Basware started as a provider of finance solutions and migrated to the e-Procurement space with the birth of e-Commerce, and, as a result, has a firm command of the order-to-cash cycle from both organizational viewpoints.

From the procurement side, the platform contains modules for analytics, basic sourcing (RFX), contract management, catalog management, e-Procurement, and e-Invoicing. From the AP side, the platform contains modules for e-Invoice Processing, e-Invoice Matching, e-Payment, and Analytics. All modules are integrated with a consistent look-and-feel, and all modules are available on top of Basware’s new cloud-based Alusta platform which supports (multi-)enterprise private cloud instances. In addition, the collaboration capabilities and social integrations span the entire platform and all data in the platform is available to the analytics module.

Another unique feature is that Basware has decided that they are a procurement platform, and not a sourcing platform, and that their sourcing capability will remain basic. Basware recognizes that Procurement experts are not Sourcing experts and vice-versa, and have decided that they are going to partner to delivery an industry leading sourcing solution for those customers that need end-to-end Source-to-Pay functionality. As a result, they recently announced a major partnership with BravoSolution to deliver a comprehensive source-to-pay solution that covers all key steps of the sourcing, procurement, and finance process.

In future posts, SI will dive into key capabilities of the Basware Commerce Network; the e-Invoice processing, matching, and payment capabilities; and the analytics platform.