Flexible Funding is a feature for Taulia Payables that allows buyer organizations to use the right funding at the right time. It gives corporate treasurers options to meet their short-term cash flow needs without restricting the liquidity suppliers rely on. Consistent, reliable access to liquidity ensures a program can continue to perform at a high level.
A recent enhancement to the existing feature allows customers to dynamically transition between their cash (in Dynamic Discounting) and third-party funding (with Supply Chain Finance) for early payments. Flexible Funding 2.0 uses a customer’s prescribed liquidity limits to automatically pull from the right source of funds on an invoice-by-invoice basis.
How does Flexible Funding 2.0 work?
To understand how Flexible Funding 2.0 works, we must start by recognizing an organization’s cyclical need for cash. If we were to capture the essence of supplier demand for early payments, it would show valleys during specific periods of the year. This cyclical demand for cash is not suppliers’ domain alone: buyers have similar needs.
Banks and other funders are responsible for meeting supplier demand in a pure third-party-funded program like supply chain finance. However, if a buyer is funding early payments with excess cash, the buyer may be:
Funneling more cash out of the business when treasurers could use it to make short-term improvements to the organization’s cash position.
Setting a hard cap on funding early payments when suppliers need cash most.
Companies don’t need to make choices that might reduce their cash options or jeopardize future program returns. With Flexible Funding 2.0, they automatically transition to third-party funds to make supplier early payments when liquidity limits are reached.
Benefits for buyers
Flexible Funding 2.0 benefits a buyer’s cash-flow needs. Here’s how:
Cash conservation tool: Because buyer demand for cash is also cyclical, they likewise need to conserve capital at the right time. For example, corporate treasury can prepare for financial reporting by adjusting the amount of cash on the balance sheet and boosting DPO with Flexible Funding 2.0. Conversely, some deploy excess cash by using self-funded early payments as an effective and risk-free way to put capital to work.
Return optimization: Buyers want to get as much yield from self-funded early payments as possible. With Flexible Funding 2.0, meeting supplier demand for cash with reliable liquidity means the programs can keep earning discounts at a high level because suppliers trust that liquidity is always accessible.
Financial optionality: Buyers can configure Liquidity Limits in Flexible Funding 2.0 to get the best of both worlds — striking a balance between the return they want on self-funded early payments while releasing the working capital needed for the business.
Benefits for suppliers
In a true win-win fashion, Flexible Funding 2.0 also supports suppliers. Here’s how:
Reliable cash flow: Early payments provide a lifeline to suppliers that rely on the continuous flow of liquidity to ensure they can meet customer demand. With Flexible Funding 2.0, suppliers never have to worry that they’ll eventually encounter situations when the spigot runs dry. Funding always stays on regardless of a buyer’s decision to use self or third-party financing.
Stronger relationships: Despite reliance on suppliers to deliver customer value, half of all suppliers in a recent Taulia survey say their buyers pay them late. Not only can late payments become a source of frustration to suppliers, but they can also become a wedge that hinders closer collaboration when market forces would otherwise compel alignment. Conversely, providing a reliable source of liquidity can be part of a broader effort to foster a relationship built on mutuality and trust.
Growth enabled: Forecasting around uncertainty is an exercise in futility. As a result, the planning required to optimize a business for growth fully is either severely hampered or shelved altogether. A predictable stream of cash suppliers can count on in Flexible Funding 2.0 allows for the certainty they need to plan and implement growth strategies confidently.
Taulia’s Flexible Funding versus hybrid dynamic discounting/supply chain finance
Alternating funding sources in most hybrid dynamic discounting/supply chain finance programs involves manually moving suppliers from one program or rate structure to another. Whether suppliers receive a company-funded or third-party offer for early payment depends on which bucket they happen to be in at the time. Multiple problems tend to arise with this approach:
Timing and execution: Without automation to drive changing the source of funds, companies rely on their personnel for tactical execution. Depending on the system or platform for managing working capital, the process could be complex, time-consuming, and fraught with potential user error (such as accidentally leaving high-yield suppliers out). Or worse, perhaps the party responsible for making the change simply misses the execution window.
Funding rigidity: Most hybrid dynamic discounting/supply chain finance programs apply funding programmatically or at the rate-structure level, meaning funding sources are constrained by program or rate-structure groupings. As a result, most hybrid programs can have one set of suppliers running dynamic discounting simultaneously with another set doing supply chain finance but struggle to adapt quickly to changing objectives. Furthermore, switching suppliers from one bucket to another might mean suppliers have different pricing based on the funder.
Flexible Funding 2.0 transitions funding sources at the invoice level, meaning when an organization’s liquidity limit is reached, a rules engine automatically redirects the accelerated invoice to a new, prescribed source of funds. These liquidity limits are preset but configurable as market conditions evolve.
Finally, Flexible Funding 2.0’s invoice-level capabilities allow corporate treasurers to view and manage their company-funded early payments program like an asset. Taulia’s analytics provides an “Assets by Day” dashboard where treasurers can view inflows and outflows of invoices that draw upon the program’s cash reserve, making it easier to administer the program based on an anticipated return on investment.
FAQs
Flexible Funding 2.0 is designed to help you meet your short-term cash objectives. Use Flexible Funding when you need to:
• Make DPO or CCE improvements for financial reporting
• Free up cash for an unplanned initiative (not forecasted)
• Avoid running short on cash payment accounts (due to early payment demand)
• Leverage a low-risk investment option for idle cash
• Maneuver as market conditions shift
• Improve supplier relationships with access to reliable cash flow
Generally speaking, no. Flexible Funding offers a blended experience of Taulia’s Supply Chain Finance and Dynamic Discounting solutions. Whereas Supply Chain Finance permits one early payment offer per day, Dynamic Discounting presents multiple offers on a sliding scale the user can review on a digital calendar. Selecting fixed or variable-rate financing with Dynamic Discounting will influence whether suppliers receive one or multiple offers per day in certain situations when Flexible Funding is activated. Consistent pricing between funding sources — structured in advance through collaboration by all parties — also ensures a unified experience for suppliers.
Rate parity concerns the consistent cost of supplier financing between funding sources. Traditionally, companies have sought to maximize their yield on dynamic discounting while insisting banks keep their margins thin on accelerated payments for suppliers. This rate disparity incentivizes suppliers to “shop” for the best price when both funding sources co-exist in a Flexible Funding-enabled program. A better approach is fair and consistent pricing between funding sources so that suppliers feel like they get a good deal on needed liquidity and buyers optimize the return on their investment with high supplier participation.
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