Category Archives: Finance

Basware: P2P for the Global “E” Part II

Late last fall, we introduced you to Basware, Procure-to-Pay for the Global “E”. Founded in 1985 in Espoo, Finland (as Baltic Accounting Systems), Basware has been delivering enterprise finance solutions for almost 30 years. Since its humble beginnings, it has grown to one of the largest global players in the Procure-to-Pay marketplace with over 2,000 international customers that collectively do business with over 1 Million companies in over 100 countries. In order to support this global customer base, Basware has had to create an operational footprint that spans over 50 countries on 6 continents which includes over 100 partner and resellers, including MasterCard and BravoSolution.

In our initial post, we noted that 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. From the procurement side, the platform contains modules for analytics, basic sourcing, contract management, catalog management, e-Procurement, and e-Invoicing. From the AP side, the platform contains modules for e-Invoice Receipt (through the Basware Commerce Network), e-Invoice Processing, e-Invoice Matching, e-Payment, and Analytics. Furthermore, all modules are integrated with a consistent look-and-feel and all modules are available on top of Basware’s new cloud-based Alusa platform that supports (multi-)enterprise private cloud instances.

In that post, we noted we would dive deeper into AP automation and (e-)Invoice processing, matching, and payment capabilities; the Basware Commerce Network (BCN); and the associated analytics in later posts. This is the first post in that series, focussing on the AP automation and invoice processing capabilities.

The invoicing module, which works pretty much as you would expect based upon standard definitions and features implemented by their North American counterparts, has a few unique features that deserve to be highlighted. Namely:

  • full compliance with e-Commerce, Taxation, and Digital Signature Requirements in over 50 countries
  • full Purchase-to-Pay process coverage from the Procurement and the AP perspective
  • integrated plans and workflows

Even though North America might be behind when it comes to e-Commerce and digital signatures, and many of the North American Procurement providers might be behind when it comes to recognition of the various types of taxes and tax codes that exist around the world, Basware, which has been supporting (e-)commerce around the world for over a decade, is up to date on all of the digital signature requirements, tax codes, and audit trail requirements. With Basware’s solution, chances are you’re ready to conduct business in every country you operate in out-of-the-box. Basware has already been integrated with over 250 ERP, MRP, AP, and other back-office systems and e-Document/e-Invoice formats supported include, but are not limited to, Finvoice, Teapps, E2B, eHF, OIOXML, cXML, EDIFACT, UN/Cefact, CSV, EDI ANSI X12 (810), Svefaktura, OIOUBL, UBL, openTrans, and SAP iDOC.

Since the Procurement module directly integrates with the AP module, as soon as the invoice is received, it can not only be automatically matched (against any and all e-Documents that are appropriate), automatically processed for approval using the appropriate user-defined rules, and routed as required for error processing or manual approval, but analyzed from a financial perspective. What is the cash-flow impact of paying early, on time, or late? How long is it taking to get through the manual processing queue versus average processing time and what impact is it having on average cycle time? Are the payment terms in line with organizational standards?

One interesting capability of the AP Automation solution (which includes Basware Invoice, Basware Match-Orders, Basware Match-Plans, Basware Mobile, and Basware Analytics) is the ability to create and manage payment plans. Basware has found that 8% to 15% of invoices in an average organization are both ‘orderless’ and recurring. In order to handle these situations, Basware created plans that can be used to define a recurring invoice and special processing rules for dealing with them. For example, a cell phone bill will come in every month the cell phone is active. There is no reason that it can’t be automatically approved every month if it is within the expected and approved amount for the employee whom the cell-phone is assigned to. For example, the user can be assigned a base plan amount and a variable amount for long-distance charges, data charges, and/or roaming charges. If the amounts are within the maximums, or tolerances, the invoice can be automatically approved. If not, then the invoice will need to be routed to the employee’s supervisor or the budget manager for approval. All of this can be captured in a plan. The plan can define the source of the invoice, the purpose of the invoice, the different line items and charges that can occur on the invoice, different tolerances and limits for the base amount and variable amount, different approval routings for each rule violation, and an appropriate workflow, among other features. In addition, invoices can be flipped into plans. Furthermore, if an invoice contains additional or unexpected line items, they will be pulled out into separate cost allocations, which can then be added to the plan if required. Manual handling of the recurring invoice disappears completely if everything about the invoice is in-line with expectations and is minimized otherwise.

Finally, Basware estimates that it’s e-Invoice solution will bring a best-in-class €10.90 per invoice (and $17 USD) through its Basware Commerce Network, which will be covered in more detail in our next post.

Top 12 Challenges Facing India in the Decades Ahead – 09 – Taxation

India has a lot of challenges ahead of it whose solution requires capital. Lots of capital. This capital is going to have to come from taxes. But in this regards, India also has a lot of challenges. The most significant of which are:

  • Poverty
    Despite rapid economic growth in recent years, India is still one of the poorest countries in the world as only 15 countries have a lower gross national income per capita. Officially, 30% of the population is below the poverty line as defined by the Tendulkar Committee Report (2009) which clarified the official poverty estimation methodology and set the poverty line at Rs 32 per person per day in urban areas and Rs 26 per person per day in rural areas at 2011 prices, which is approximately 52 US cents in Urban areas and 46 US cents in Rural areas at the end of 2013. This line is so low that it is actually a destitution line that does not ensure anything above bare subsistence. If we use the international poverty line of $1.25 US per day as defined by the World Bank, then almost 33% of the population is below the poverty line and if we define the poverty line at $2.00 US per day, which is barely above subsistence levels in many of the bigger urban areas, then almost 69% of the population is poor!
  • Unequal Wealth Distribution
    The top 1% own 16% of the country’s wealth, and the top 10% own 53%. India has three of the 100 richest men in the world, and the richest man in India is worth almost 22B, while the second and third richest men are worth about 17B and over 11B, respectively. This says the three richest men are worth about 50B in a country with only 1.8 Trillion in GDP and that they alone represent a net worth that is about 2.8% of the overall economy.
  • Import Duties
    India does not charge, or often forgives, import duties on certain types of materials and products that could provide a considerable contribution to the economy, even if the duties were kept low with respect to the rest of the world, and it does a poor job of collecting import duties on some categories that it has stated it will make an effort to collect import duties on. For example, the annual “Revenue Foregone” statement released by the Finance Ministry estimates that India lost RS 529,432 crore (97 Billion) in 2011-2012, or more than 5% of India’s GDP and nearly 67% of total tax collections in India in 2011-2012! (Source: IndiaSpend) This included almost Rs 66,000 crores of customs duties foregone on “diamonds and gold” alone. Any one, or any business, that can afford to buy diamonds and gold can certainly afford to pay a small import duty! And the duty is small — in India, the import duty on gold is a mere 2%! (In the US, the duty and taxes for gold jewelry can be up to 5.5%.)

In other words, India has the situation where:

  • Approximately 2/3rds of its population cannot afford to pay tax.
  • Almost 1/3rd of the remaining population that can afford to pay tax is extremely wealthy, influential, and able to influence the government that sets the tax rates.
  • The government, unwilling to deal with intense complaints or publicity when it tries to collect, or raise, import duties is giving up over 40% of its potential current tax base.

For a country that can’t even address the basic needs of its population, how is it ever going to address its infrastructure, energy, and global economic challenges if it doesn’t stand up and collect taxes where taxes are due?

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.