Status based receivables finance workshop 15-1-16 Fraunhofer Frankfurt

Frankfurt 15 January 2016SBRF workshop: status and demonstration

2 SBRF Workshop 2 | Frankfurt | SCF Community & Innopay | 15 January 2016 © Innopay BV. All rights reserved.

List of workshop (registered) participants


Agenda

Welcome by SCF community

Introduction round

Update of the project

Benefits of sharing invoice status

Demonstration of the Proof of Concept

Project overview next iteration

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Agenda


Introduction round





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Fraunhofer IML Procurement & Finance in SCM – at the financial center Frankfurt & in the heart of Europe

IML DO

CLM FRA

MILZRH

LDN

CDG

AMS

• Research focus SCF in Frankfurt• Member of SCFC (GER representative)


How do we promote standardisation?

• SCF Community membership and activities in

working groups

• Research focus SCF at Fraunhofer IML Frankfurt

HOLM

• Projects with practitioners

• Collaboration with German ministry

• SCF workshops organised by Fraunhofer IML

together with SCF Community


Why do we need standardisation and what is the scope of standardisation for SCF?

Scope

1. Definition SCF and SCF concept/framework2. Implementation process3. Terms4. IT/technology/platform

Reason

• Many different providers and corporate users- Heterogeneity of concepts, technological solutions, processes leads to inefficiency,

problem-prone processes and interface problems (IT)• Difficult collaboration of Procurement and Finance in corporates• No consistent definition of SCF, no common understanding of concept and terms


What can we achieve with the standardisation of SCF?

Scope Goals

Definition SCF and SCF concept/framework

• Cost advantages• Experience curve effects• Establish best practices • Acceleration of process improvements• Intensifies know-how transfer• Allows benchmarking• Reduces unawareness and fear

Implementation process • Facilitates application• Facilitates on-boarding• Further/intensified dissemination, also international• Marketing effect

Terms • Same ‘language’ and understanding• Improves internal collaboration (Procurement and Finance)

IT/technology/platform • Compatibility of technology and processes• Reduction of complexity• Resolve interface problems• Selective development of IT• High quality processes


Agenda


Introduction round





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• Founded in 2002

• Partners: Shikko Nijland & Douwe Lycklama

• HQ in The Netherlands, Amsterdam

• 20+ consultants plus International network of associated experts

• Three core practices: Payments, Digital Identity and E-Business

• Strategy, co-creation and transformation

• Geographical focus on EU

• Member of a.o. EBA, ECP and EPCA

• Founding member of Holland Fintech

Innopay: innovation experts in Payments, Digital Identity and E-Business


I n t r o d u c ti o n s a n d e x p e c t a ti o n s


Agenda


Introduction round





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Project history: iterative approach turned out to be essential

Concept of standardising invoice statuses across existing invoice solutions crystalising

Research: does standardization of invoice status info and its exchange improve financeability of receivables?

Concept model used: Status Based Receivables Finance

Key outcomes:• Benefits are recognised• Buyers invoice approval is key• Buyers risk assessment could be enriched• Governance for trust is needed• Invoice status flows evolves from ‘self-

declared’ to ‘guaranteed’

Recommendation• Scope the minimum viable product and

create European coalition of the willing for standardizing invoice status exchange

Proof of Concept and Coalition creation

Key outcomes:• European coalition not feasible yet,

different levels of engagement• Start open and small• Successful Proof of Concept NL

Recommendation• Create PoC in other communities• Extend NL PoC• Build scope based on experiences

ITERATION #1: 2015 OCT-JANITERATION #0: 2014 SEP-DEC2012-2013


Nov 2`015 Dec 2015 Jan 2016 Onwards >>

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Project overview

Meetings & regular touch points

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Iteration #1 Iteration #2 Further iterations >>

Mar – Apr – May 2016

Workshop17 Nov

Webinar10 Dec

PoC report

Working PoC

platform

PoC NL Sprint 1 PoC NL Sprint 2 PoC NL Sprint 3

PoC presentation

PoC reports

Working PoCs

PoC presentations

New PoC A

Harmonization of specs

Specification & design PoC

PoC live

Iteration review

New PoC C

Iteration review

Project plan


New PoC B

Extend NL PoC


Knowledge sharing

Workshop15 Jan

Today

Project plan


Agenda


Introduction round





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The problem: Unpredictability leads to challenges for selling parties in managing their cash positions

• Cash flow forecasting can’t be optimized due to limited visibility on invoice status and payments

• Restrictions on working capital reserves to deal with trading risks (e.g. non-payment, disputes, performance)

• The asymmetry between the flow of cash and the flow of invoice information (e.g. payment terms) between Seller and Buyer lead to uncertain financing possibilities

• Limited access to financiers receivables financing offerings (e.g. reverse factoring, asset-based financing) due to high process and financing cost as well as dependency from cooperation from buyers

Invoice sent

Cash

Invoice sent

Cash

Financier Financier FinancierUnpredictable

when/if cash will come!

Unpredictable when/if cash will

come!


Why lock ‘m up if unleashing invoice statuses helps SME suppliers to find financing? We have to free the invoice statuses!


We can learn process transparency from other industries

2

1Accepted for shipment Driver on his way Delivery

Received invoice Approved invoice Guaranteed invoice

Usage of status information in an E-Commerce context:

Possible usage of status information in the invoicing and financing context:

Status of invoice:

Status of shipment:


Hypothesis: The cash position of selling parties is positively influenced when buying parties share invoice statuses with selling parties

1. More transparency for Sellers

2. More certainty on invoice payments for Financiers and Sellers

3. Improvement of core processes of Financiers in terms for operational handlings and risks

Invoice sent

Share status

3. Example invoice statuses:

Invoice sent

Share status

Financier Financier Financier

RECEIVED

LEVEL OF CERTAIN

TYVIEWED

PENDING

APPROVED

STATUS MATURITY

VERIFIED

SEPA PROCESSED

REJECTED

2. Sharing the invoice status leads to:

1. Example supply chain where invoice statuses are shared:


All actors in the supply chain could benefit from the sharing of invoice statuses (financier, selling party & buying party)

Key ‘Financier’ benefits1. Lower risks2. Process efficiency3. Ability to address lower

ticket mass market

Key ‘Buyer’ benefits:1. Less operation creditor

handling2. Strengthening of entity’s

supply chain 3. Optimise internal

procurement and invoice approval processes

4. Invoice discount opportunities

5. Longer payment term potential

Key ’Seller’ benefits:1. Better cash flow

forecasting2. Less operational debtor

handling3. Better access to

financing instruments: faster, more choice, easier

Invoice sent

Share status

Invoice sent

Share status

Financier Financier

Example supply chain where invoice statuses are shared:

Buy

Entity

ERP solution

Sell

Entity

ERP solution

Buy Sell

Entity

ERP solution

FinancierFinancier

Sell Buy


Invoice status sharing is compatible with existing e-business and SCF ecosystems: at least 6 set-ups foreseen

E-invoicing provider

Status platform*


Tech./RF platform

Data providers

Financier

Goods, Invoice Goods, Invoice

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23

456

Buying entity gives permission on Selling entity’s request

Share status Share status

Financier Financier

Buyer permission needed in all scenariosa) Seller sets up

process between his buyer and his financier

b) Financier triggers invoice permission request towards buyer

c) Buyer gives permission for e.g. one invoice, group of invoices, certain period

6 different set-ups for exchange of statuses

1. Buyer’s ERP communicates directly to Seller’s ERP

2. Buyer’s (and/or Seller’s) E-invoicing provider(s) communicate to Seller’s Financier

3. Buyer’s ERP is accessible for Data providers who use statuses to enrich datasets

4. Buyer’s ERP communicates with Reverse factoring platform, which communicates to Seller’s Financier

5. Buyer’s ERP communicates with Seller’s financiers through status platform.

6. Buyer’s ERP communicates directly with Seller’s Financier

Note: In all set-ups the buying party needs to provide permission to the selling party before statuses can be shared!

Permission protocolInvoice status exchange

* Used for Proof of Concept


Agenda


Introduction round





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Proof of Concept (demo) set-up



Tech./RF platform

Data providers

Goods, Invoice

Buying entity gives permission on Selling entity’s request

Share status

Financier

Status platform

Financier

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Invoicepermissions.com

voldaan factoring B.V.

Permission protocolInvoice status exchange

Innopay • Plays the role of Buyer

(only for demo purposes)

• Status platform has API access to Innopays =ExactOnline software, which is a cloud solution and popular in the Netherlands amongst SMEs

Status platform• Facilitates access via permission protocol

for voldaan factoring B.V. to Innopay ‘s ERP solution (i.e. ExactOnline software)

• Faciltates automatic and direct exchange of invoice statuses between Innopay and voldaan factoring B.V.

• Harmonises invoice status from Exact into one standard format to voldaan factoring B.V.

voldaan factoring B.V. A non-banking factoring company in the role of Financier that is directly connected to status platform to receive the invoice status.

Homecareinnovation.nlClient of voldaan factoring B.V. in the role of Seller.


Voldaan can manage the invoice status on its own dashboard

1. There is one unique invoice reference number that is used by homecareinnovation.nl, Innopay and voldaan factoring B.V.

2. Status of invoice is depicted here. Status keeps being updated when Innopay changes status in own Exact solution

321 4

3. Voldaan sends permission request to access Innopay’s administration or update invoice status by use of the blue button

4. Status history per invoice is registered to keep track on Innopay’s approval behavior

Explanation of most important functionalities

History


Permission request by Voldaan - on behalf of Homecare innovation – to access Innopay’s administration

[email protected]


Innopay receives e-mail from Invoicepermissions.com

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1. Innopay receives mail from invoicepermissions.com to support cash flow Homecare Innovation B.V.

2. Innopay can authorize voldaan factoring B.V. access to the invoice status from its Exact solution by clicking on this link


Innopay is redirected from link [ ] to invoicepermissions.com

1. Innopay grants voldaan factoring B.V. permission to receive invoice status for a specific amount of time and/or (fixed) set of invoices of homecare innovation B.V.

3. Permission can be changed by Innopay at any time.

2. Innopay will be redirected to own ExactOnline for final authorisation

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First lessons learned: POC shows promising potential, but there are several challenges for the next iteration towards standardisation

1) Relieve buyer from seller’s finance activities2) Manage buyer’s risk profile via invoice status history3) Explore functional requirements for future set-ups4) …

Func

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1) Governance management of platform (e.g. adherence processes, rulebooks, technical standards)

2) Prevent double spending/pledging 3) …

1) What legal value to attach to invoice status2) Legal scope of permission protocol3) Set-up adherence process and documentation for future

participants 4) …

1) Creation architectural principles2) API fragmentation of ERP solutions of other countries

than the Netherlands3) Creation of connectivity standards (e.g. protocols,

data formats, semantics)4) ……

‘LOFT’ challenges:

Technical elementsHow is information exchanged among users and what technologies are used?

Legal elements: Legal considerations for sharing invoice status and using permission protocol

Operational elements: How should managing the invoice status and permission requests be organised?

Functional elementsWhat are the functionalities and services that should be supported?

Non-Exhaustive


Agenda


Introduction round





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Project overview

Nov 2`015 Dec 2015 Jan 2016 Onwards >>

Trac

k 3:

Pr

ojec

t-m

gmt

Meetings & regular touch points

Trac

k 2:

Proo

f of C

once

ptTr

ack

1:

Stan

dard

isati

on

Iteration #1 Iteration #2 Further iterations >>

Mar – Apr – May 2016

Workshop17 Nov

Webinar10 Dec

PoC report

Working PoC

platform

PoC NL Sprint 1 PoC NL Sprint 2 PoC NL Sprint 3

PoC presentation

PoC reports

Working PoCs

PoC presentations

New PoC A


Specification & design PoC

PoC live

Iteration review

New PoC C

Iteration review

Project plan


New PoC B

Extend NL PoC


Knowledge sharing

Workshop15 Jan

Today

Project plan

We look forward to it

Contact us Pepijn Groen

[email protected]

+31 6 24 89 72 99

Douwe Lycklama

[email protected]

+31 6 55 71 11 50


Sharing the invoice status increases risk transparency for Financiers

Invoice status information classification

Received Viewed Pending Approved Verified Processed Rejected

Informed that the invoice is

registered in Buyer’s

administration

Informed that invoice has been

seen by the Buyer

Informed by Buyer that invoice is being discussed

(e.g. internal check, dispute,

terms negotiation)

Informed by Buyer that invoice

is correct

Informed by authorised

representative of Buyer

that invoice is correct

Received payment

guarantee by authorised

representative

Informed by Buyer that invoice is not approved

Risk

component

Fraud - - - √ √ √ √

Dispute - - - √ √ √ √

Counterparty - - - - √ √ √

Performance - - - - - √ √

Data enrichment (e.g. transaction history, solvability ratio)

Part

of S

tand

ardi

satio

n pr

oces

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Status based receivables finance workshop 15-1-16 Fraunhofer Frankfurt

Economy & Finance

Transcript of Status based receivables finance workshop 15-1-16 Fraunhofer Frankfurt