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PrimeRevenue’s Tom Roberts: ‘More companies are optimizing their cash conversion cycle’

Supply chain finance is a part of fintech that doesn’t share the same limelight with other sectors like consumer lending or consumer payments. Throughout history, companies have typically turned to one or two financial providers to help them free up money in their supply chains.

That’s all changing with companies like PrimeRevenue, a supply chain finance platform for buyers and sellers that also has 50 different financial providers baked in. Based in Atlanta, the company works globally across borders and currencies. Tom Roberts heads marketing, and is the guest today on the Tearsheet Podcast.

Roberts talks about the world of supply chain finance, trends and opportunities, as well as his own marketing career in fintech that includes stints at DST, ETrade, CashEdge, and Fiserv.

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Below are highlights from the episode, edited for clarity.

What’s driving companies to adopt supply chain financing?

For larger enterprises, it’s trying to find ways to optimize their cash conversion cycle, or the time between when they pay and get paid. The more you can optimize that, the better off you are. Most of the companies we work with are trying to respond to pressures in the marketplace, so they have strategic initiatives to drive innovation, respond to changes in customer demand and competition, or find growth through acquisitions. So, they’re trying to fund strategic initiatives with supply chain finance. For large enough companies, supply chain finance can deliver cash flow gains of hundreds of millions of dollars or billions of dollars.

Can you give an example of a company that used supply chain finance to unlock this type of cash?

Auto parts manufacturer, Mann + Hummel, is based in Germany and recently won an award for their program. They supply auto parts to ORMs and the aftermarket. They’ve used supply chain finance to really grow their business — they’ve doubled in size in the reasonably short amount of time we’ve been working with them. They’ve built a new corporate headquarters in Germany and an innovation center in the U.S. that’s helped drive the overall growth of the business.

Do you see yourself as a technology or finance company?

We have to be a solutions company, so technology underpins everything we do. We operate in 70 countries, in 15 different languages, and more than 15 different currencies. So, we need a technology platform to do what we do in a scalable fashion. That said, if we were only a technology company, we wouldn’t have the business we have today where we plug in 50-plus banks and non-bank funders into our platform.

So, we basically sell a reasonably sophisticated financial product and financial solution, but all of our consultative solutions people, our data and analytics, and our experience gets wrapped around the technology to provide our total solution.

What’s the impact of providing a multi-lender solution?

As with every company I’ve ever worked with, we don’t have a greenfield market and have plenty of competition. We compete primarily with some of the world’s largest financial institutions, like Citi, Wells Fargo, and Deutsche Bank. Banks typically make decisions based on their credit risk, the regulatory climate and geography. We’ve seen multiple instances where very large lenders pull out of specific jurisdictions or pull out of certain programs.

If you’re a large enterprise running a program with hundreds or even thousands of suppliers on it, that disruption can be very damaging to your own financial position, as well as to the health and responsiveness to your suppliers. So, we’ve put together a multi-funder model to mitigate against that risk and to provide program sustainability. We’re not a great fit for companies that want to work with just one bank.

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‘When they win, we win’: kountable brings social supply chain financing to Rwanda

There is nothing quite as satisfying as a fun-fact mashup, especially when it weaves a compelling financial trend narrative.

Witness the following:

  • Fun fact no. 1: SMEs account for 80 percent of the region’s employment, establishing a new middle class and fueling demand for new goods and services.
  • Fun fact no. 2: The share of bank-intermediated trade finance that is devoted to intra-African trade is limited, and comprises approximately 18 percent ($68 billion) of the total trade finance assets of African banks.
  • Fun fact no. 3: The trade finance gap in Africa is estimated to be between $90 billion and $120 billion.

The Mashup: SMEs are huge in Africa, but they’re not getting the trade financing they need from established financial institutions.

Ttrade financing platform, kountable is helping Rwandan entrepreneurs get the trade financing they need to build their businesses. The company isn’t an online lender. Rather, much like a supply chain financing firm, kountable, and not the entrepreneur, pays the vendor for the goods. The entrepreneur then acts as agent to ensure said goods are delivered to the customer, who then pays kountable. Following which, kountable pays the entrepreneur – minus a fee.

kountable's circles of financing in diagram. Source: kountable.com
kountable’s financing cycles in diagram. Source: kountable.com

Supply chain financing has been experiencing a surge in the U.S., and one of the kountable co-founders saw a need for trade financing when working with Rwandan entrepreneurs. “Our platform allows us to perform the due diligence and underwrite transactions in a fraction of the time a bank would take to process a loan application, particularly for a customer without a credit score,” said Chris Hale, kountable founder and CEO. “Since our risk is mitigated by the structure of our transactions, including having the goods as collateral, we are able to finance at lower rates than banks and other lenders can offer.”

Like other supply chain financiers, such as U.S.-based Behalf, kountable has hopped on the trend bus of developing its own credit score for each entrepreneur and small business. Interestingly, this trend is just as relevant to the under- and unbanked of the U.S. as it is to the under- and unbanked of Africa.

The kountable credit score is sufficiently alternative — it’s based on the entrepreneur’s social media footprint. With the entrepreneur’s permission, the company’s smartphone app collects data points from a number of sources, including Facebook, Linkedin, Google+, and Twitter, which feeds into its calculation of the kscore. “What we see is that a successful, connected entrepreneur has a visibly different data footprint than, say a start-up entrepreneur, or a non-entrepreneur who is well connected,” said Hale.

Of course, kountable isn’t the only fintech solution for SMBs looking for funding in Africa. Marketplace lending platforms for SMBs have sprung up in Kenya, Ghana, Tanzania and Zambia, and microbusinesses have had organizations like nonprofit Kiva to turn to for micro and slightly larger loans for at least the past decade.

But for a certain set of entrepreneurs, a loan isn’t always the answer. Specifically, kountable services reputable entrepreneurs that need short-term financing to purchase goods for customers. So far, the company’s average transaction size has been $90,000 with an average duration of 90 days, which means that for the SMEs that seek kountable out, microfinancing was never an option.

The Rwandan government has so far been cooperative and supportive of kountable’s social platform, and the company is currently contemplating a US offering, though how it will differ from the Rwandan product is unclear. The firm will likely have to fight harder to acquire customers stateside, where online supply chain financing abounds.

Still, it’s hard to deny fun fact no. 4: by bringing supply chain financing to Rwanda and some of its neighbors, kountable is helping further financial inclusion in Africa. As far as Hale is concerned, online and digital platforms that are a variation on the supply chain financing theme are the next generation of SMB fintech solutions.

“The first wave of fintech, like any digital transformation, digitized much of the information and processes related to loan origination,” explained Hale. “The next wave should be to innovate around the product itself and to deliver financial solutions instead of just loans that better fit the small business customer.”

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Winning in online lending requires creative acquisition strategies

best presentations for marketplace lending

There are a couple of ways to skin the online SMB lending cat: sure, you can provide straight-up loans to small businesses in need of capital. But, there’s a growing trend of what are called supply chain lenders — financing firms that provide cash to help grease the wheels of commerce.

Some of these lending models work as a three-way balancing act, providing cash as the connective tissue between buyers and sellers. By inserting themselves in the supply chain of both interested parties, everyone typically wins. Sellers have conflicting priorities. Of course, they want to get paid ASAP but they also understand that today’s buyers want, or require, flexibility in their payment terms. Supply chain lenders can help suppliers get paid quicker, provide beneficial payment terms to their customers, without taking on any credit risk.

“Cash flow patterns vary significantly among small and medium size businesses, so one-size-fits-all doesn’t work. For some businesses, reasonably priced supply chain financing can be the best solution,” said Ann Marie Mehlum, associate administrator for the SBA’s Office of Capital Access.

Supply chain financing makes acquisition easier, cheaper

In a way, supply chain lending is a better mousetrap. It’s really hard for a standalone lender to profitably bring in new borrowers. That’s why leaders in the space are partnering with incumbents, to help with acquisition costs. OnDeck did just that with its partnership with JP Morgan.

Supply chain finance firm, Behalf, has built an interesting distribution model. The firm works with suppliers to act as a financing option for their SMB customers. SMBs can take out a loan with Behalf to finance a purchase and Behalf pays the supplier immediately for its wares.

“Our value proposition is a win/win for customers and merchants – it helps customers optimize their cash flow, so they can buy more, which then increases merchant sales,” says Crystal Eastman, Behalf’s head of marketing, “so our product effectively sells itself.”

Instead of sending millions of direct mail pieces per month like many marketplace lenders have done, online lenders like Behalf are finding that they can lower acquisition costs by identifying and incentivizing suppliers to spread the word to potential borrowers. In this model, Behalf’s online approval tools can be integrated in a site’s checkout process, so that by the time a customer reaches checkout, he’s already approved for a short term loan.

It’s similar to the strategy used by consumer lenders like Greensky, Bread and Affirm who are signing partnerships with retailers to integrate their credit products at checkout.

Online lenders embed themselves in the distribution channel

For lenders like Behalf, good marketing isn’t a splashy ad campaign or a gaudy billboard in Times Square. Acquisition is about completely understanding the needs of vendors and buyers across different industries. Once the ecosystem is understood, then it’s about embedding themselves in their distribution channels so that their product spreads virally from organic peer-to-peer recommendations.

The upstart lender can cite numerous examples of an SMB customer introducing its lending product to a vendor and the vendor eventually rolling out Behalf’s financing options more broadly to its customer base.

“You can reach out to buyers who then bring the sellers, and you can reach out to sellers who then bring the buyers,” says Behalf co-founder and CEO Benjy Feinberg.

Build trust by partnering with incumbents

It’s unclear just how many small businesses in the US are taking advantage of financing solutions that take both SMBs and their vendors into account. Another way to scale the acquisition fence is by partnering with a more established financial partner. In Behalf’s case, it was MasterCard.

Behalf is set to gain further national exposure when the credit card firm, along with data proivder, Comdata, rolls out an offer to SMBs for alternative payment terms to be used at vendors that accept MasterCard. Similarly, that should entice MasterCard-accepting vendors to join Behalf’s vendor platform. 

“Our partnership with MasterCard will have tremendous utility for our customers and allow them to access additional purchasing capacity with more flexible terms at vendors they may already be paying via MasterCard,” Eastman explained. “We have big plans for our MasterCard feature and it will become a more core part of our marketing and product strategy over the next six months.”

Danger, Will Robinson?

The MIT-Zaragoza International Logistics Program, in Zaragoza, Spain, found that growth in supply chain financing  could raise the risk profile of businesses to dangerous levels, and could even cause a systematic financial failure. These concerns mean that financial institutions engaged in forms of finance like reverse factoring and alternative SMB financing companies like Behalf will probably face the regulatory music in the near future.

In the meantime, Behalf can congratulate itself on the fact that it hasn’t had to do a lot of follow-up marketing. “They usually come back by themselves,” says CEO Feinberg. “It’s like asking why people use a credit card again and again? Because it works.”

Tradestreaming’s Hadas Tayeb contributed to this article.