Basware provides a cloud-based link to allow companies and their suppliers to create invoices and exchange billing, approval and payment information without proprietary systems at either company.
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“It’s a way for payments to happen without using checks,” said Esa Tihilä, CEO of Basware, a Helsinki-based company that provides electronic invoicing. “It saves time and money on both sides.”
The supplier sends an invoice and the buyer can approve it immediately and then pay at a specified time. Basware counts about 900,000 organizations as customers and has an inexpensive marketing approach — when one of its existing customers like KLM, Siemens or a car manufacturer — tells suppliers it wants electronic invoicing through Basware, the supplier is apt to sign up. Both sides win because Basware streamlines invoice processing.
“We are talking to the buying organizations,” explained Tihilä. “They tell us they have these 70,000 suppliers. Then we contact those suppliers and say that Daimler is keen on getting electronic invoices. Then we tell the suppliers, once they have succeeded with our electronic invoicing, that here is a list of other organizations that can receive your invoices electronically as well. We start with the buyers and then go to the suppliers.”
MasterCard has recently signed a partnership with Basware to provide financing based on the invoices. Once a buyer approves an invoice, MasterCard will finance the bill and pay it in real-time through the MasterCard network, beginning sometime in Q1 2014. The average time for paying a business to business invoice is 55 days, said Tihilä. If the buyer wants to prolong the payment, the seller can get financing through MasterCard. The system is highly automated, reducing the overhead common in factoring of receivables, which is rarely done for amounts under $10 million, he added.
“With this system and MasterCard, we are able to offer very attractive interest rates for the service. It is highly automated and can be used for all invoices, from small to large.” Interest rates will vary, he added, but are very competitive.
“To be successful you need volume,” Tihilä added. “With MasterCard we can offer the same solution worldwide. We are the global electronic invoicing service provider in 110 countries. MasterCard is global so we can offer the same solution across the world.”
As many large corporations delay payments to suppliers stretching out well beyond 30 days to 60, 90 or even 120, electronic invoicing firms, B2B payments and financial companies like MasterCard are stepping into the payment gap, largely bypassing banks.
It may seem counter-intuitive that at a time when interest rates are near zero, large corporations would be trying to hoard their cash at the expense of their suppliers, but they are.
“Companies that are buying are trying to figure out how to improve their cash positions,” Tihilä. “This can severely impact the supplying company that needs the money.” Tihilä, chair of European e-invoicing providers, said that only the UK requires companies to pay their suppliers within 30 days.
Enrico Camerinelli, senior analyst at Aité Group’s wholesale banking practice, said that the first response of large companies in the financial crisis was to push back payments.
“Now, at least in some companies, the big effect of the crisis is slowing down, but they still have a tendency to improve their own working capital by delaying payments.” Buyers will sometimes offer to pay on presentation of the invoice for a two percent discount.
“If you add that up, it becomes double digit interest rate on an annual basis,” he added.
Whether MasterCard will provide a credible solution remains to be seen.
MasterCard will have to learn to be more flexible than it is with credit card customers, said Camerinelli, who expects the payments company is learning about the SME business from Basware.
“Credit card players have a good chance to play a role in SME finance if they become more flexible and learn to work with these mid-sized companies that do not have sophisticated accounts payable and accounts receivable systems. And they will have to rethink their pricing.”
More than a few efforts in B2B financing have launched and faded, he added.
Visa and US Bank formed a joint venture called Syncada to provide “integrated invoice processing, payment and financing platform for financial institutions to offer to their corporate and government commercial clients around the world.” Visa left the arrangement. Citi tried to partner with Ariba, since acquired by SAP and JPMorgan had a go with a company called XIGN.
None was a success, he said.
“The point is that banks are too inflexible.”
Tihilä said this combination of electronic invoicing and MasterCard financing could be a boon to cash-strapped suppliers. Some big buying firms have realized that by withholding payments, or pressing their margins too hard, they risk driving important suppliers out of business.
“There are examples where the big buying organization has put their contractors on their knees, and they go bankrupt and the big buyer is in trouble. (See my story on Zurich Re and supply chains) We are decoupling this. If you as a big buyer approve the invoice, then we are able to finance it regardless of your payment capabilities, and that is helping the smaller organizations or suppliers.”
The question will be how much MasterCard charges for that financing and whether Basware will link to any other financing providers, whether banks or perhaps nontraditional players like hedge funds or pension funds.
The European Commission has said that more than half the European economy depends on small businesses, and small businesses are having cash flow problems all the time. Now if a P&G pushes payment out to 75 days, a small supplier can use Basware and MasterCard to get 98 percent of the invoice in real-time, and then MasterCard collects from P&G.
Basware must be doing something right; Tihilä said the company in Q3 grew 70 percent from revenues the year before. With electronic invoicing now at just 10 percent of the market, he sees great growth potential.
“It takes some time for people to get it, and then everyone wants to have it,” he said.
Robert Cohen, marketing manager at Basware, said that it operates as an open network which any industry segment can use, unlike some that are specific to chemicals or autos.
“We have relations with 160 e-invoicing providers and we connect will all kinds of ERP systems,” he added. “If your ERP can generate any sensible data format, we can capture it and send it to the receiver.” This makes it different from EDI, an earlier electronic invoicing system, that required one-off connections between a supplier and a buyer.
Basware’s main competitor is paper, which is slow and expensive to precess. In Basware’s home country of Finland, 70 percent of all companies are connected to the network, the highest penetration in the world. But then the Scandis are famed for being leaders in electronics and mobile…in finance cash is rapidly receding from the economy.
“Basware is a way for payments to happen without using checks,” said Cohen. “The whole arrangement connecting Basware with MasterCard opens new doors. “
“This will spur growth,” agreed Tihilä.
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