In Part 3 of 4 in the Making Sense of Dynamic Discounting series, Maex Ament, Chief Product Officer and co-founder of Taulia, joins Susie West, CEO of sharedserviceslink, in discussing the role of banks in supply chain financing and dynamic discounting.
Traditional Supply Chain Financing, where banks allow the most strategic suppliers in their supply chain to be paid early, is highly successful for big banks and has been around for over 10 years. Supply Chain Finance takes care of roughly the top 2% of a company’s suppliers as the invoice volume justifies the labor-intensive and often paper-based know your customer (“KYC”) process. This leaves the mid-level and smaller suppliers often forced to finance their receivables or turn to expensive short-term funding options.
That’s where Taulia steps in. Taulia offers buyer-funded Dynamic Discounting for the mid-level and long tail suppliers so that companies can still get these early payment discounts everywhere else in their supply chain. Larger suppliers--the Intels of the supply chain--would prefer Supply Chain Finance as they are used to a lower APR offered by big banks. However, Dynamic Discounting offers an attractive APR that is much more cost-effective to suppliers whose only choices are factoring or using a credit card.
In other words, Supply Chain Financing and Dynamic Discounting can peacefully co-exist to keep every supplier in the supply chain happy and paid early. Everyone wins!
Previously, Dynamic Discounting and Supply Chain Finance were perceived to be competing initiatives and solutions, but that has changed over the years. Ament states Taulia has since made it clear that these two solutions put together make up a viable hybrid solution, which eventually led to Taulia’s partnership with Citibank.
Other financial institutions such as hedge funds are much more flexible with the types of suppliers they can support, and Ament sees this as a near-future trend for organizations. Looking forward, banks will figure out ways to broaden the offering of Supply Chain Finance to a larger base of the supply chain in order to compete.Listen to the full interview here: