Strengthening the working capital position of SMEs through ‘track and trace’ of invoices - invitation to participate

  • Douwe Lycklama Friso Spinhoven
  • ReportsE-BusinessEnglish content

When companies have more insight in the status of the invoices that they send to their customers, planning incoming cash flows becomes easier. This enables them to further optimise their working capital position. More insight also allows for process efficiencies and better risk management by financiers (for instance banks and factoring companies) when financing outstanding invoices.

On the basis of this hypothesis, the Dutch factoring company ‘voldaan’, a client of voldaan, and Innopay demonstrated an invoice status tracking concept between November 2015 and January 2016. The demonstration was created as part of the standardisation work stream of the Supply Chain Finance Community, under the supervision of Fraunhofer Institute in Dortmund.

In this specific demonstration, or ‘proof of concept’, the financier retrieved the status of an outstanding invoice from the buyer electronically, while retrievement by the seller remained out of scope. The financier gained insight into the progress of the invoice at the buyer, and the associated risks.

SCFFigure 1:  The invoice status is accessible for the financier after consent of the buyer

How does it work?

After purchasing a product or service, the buyer receives an invoice from the seller. Suppose the seller wants to use this invoice for financing purposes. He then (electronically) requests his buyer to grant his financier permission to access the status of the invoice in the ERP system of the buyer. If the financier is granted access to the status of the invoice, he can ‘track and trace’ the invoice in the buyer’s ERP system. This allows the financier to reduce his risks and lower the costs of financing the seller.

Benefits

The automated retrieval of the invoice status has a number of benefits, including:

For financiers:

  1. Lower costs due to process digitisation;
  2. Better risk assessment;
  3. New financing markets because it becomes economically viable to finance sellers based on smaller invoices.

For buyers:

  1. Less manual handling of incoming invoice inquiries;
  2. Improving financial stability of the supply chain;
  3. Possibility of later payment or discount.

The resulting benefits are for the seller, who gets a better visibility of his cash flow, as well as potentially better and easier financing options.

Further insights

The proof of concept also gave insight into:

  1. Preliminary specifications of the protocol through which the buyer can mandate the financier of his seller to access the invoices’ status in his ERP system;
  2. Preliminary specifications of the digital invoice statuses and the inclusion thereof in the business processes and systems of sellers and financiers;
  3. The positioning of such status exchange in existing SCF (reversed factoring) programs, e-invoicing solutions and other business data solutions. It turns out that exchanging statuses is inclusive to all known use cases so far and offers additional value for stakeholders involved;
  4. Interest with communities in Germany, Italy, Finland and Switzerland.

In the first half of 2016, this proof of concept will be extended with more financiers, sellers, buyers and ERP solutions. It will also be expanded geographically to at least Germany and Italy. Also, the practical integration with e-invoicing and SCF platforms will be investigated. The outcomes of all proofs of concept will be integrated into a proper basis for standardisation along the dimensions of Legal, Operational, Functional and Technical aspects. The ultimate goal is to make this standard part of the ISO20022 suite (www.iso20022.org ) of financial standards (trade section).

The project is now open for further participation by financiers, sellers, buyers and ERP software, e-invoicing and SCF providers. If you are interested in participating, please send an email to: friso.spinhoven@innopay.com

Links

  • Slides of last workshop in Frankfurt on the 15th January 2016 at the Fraunhofer Institute
  • Project plan for the continuation of the proof of concept
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