It is so rewarding for businesses to deliver goods and render services. It can be the outcome of years of research & development and hard work. And yet, the steps businesses need to take to get cash from customers can be such a cumbersome process – often dulling the shine of success. Accessing liquidity to fulfill demand is even more problematic.
Imagine a new world. One where at the click of a button a business can send invoices electronically, collaborate with customers and get access to the cash it needs to invest in growth, cope with demand, or even survive in periods of hardship. Taulia enables this world to become reality.
Since being founded in 2009, we’ve been building a fintech platform that connects businesses together. We started with a focus on allowing businesses to get paid earlier and quickly learned the importance of complementary solutions.
When we entered the market, Supply Chain Finance had been around for more than 20 years and was dominated by the trade finance departments of the largest banks in the world. Technology-led solutions got traction with large enterprises and their suppliers which transformed the market. However, unlike many other disruptive innovations, banks here and across the globe are adapting instead of being displaced. They have fully understood that the best technology is necessary to deliver on their customers’ needs and to complement their own core business; providing capital.
The basis for Taulia was a simple observation. When a business approves an invoice and it becomes ready to pay it just sits there. Instead of paying right away, the business will wait until payment is due. They have no incentive to pay it early because they can use that money for other initiatives. Enter Dynamic Discounting, a simple concept where the business supplying the product can discount the amount of the invoice in exchange for being paid early.
Customers wanted to ensure that as many of their suppliers as possible could benefit from the solution if they chose to. They wanted to increase visibility and collaboration. So, we built a supplier self-service portal where businesses can see their purchase orders, invoices, payments and much more, all for free. It helps reduce inquiry calls for our customers while providing a place for the “pay me early” request to exist.
Invoice Automation came next. If an invoice isn’t captured and approved quickly, it limits how long it’s eligible for an early payment. If an invoice is set to be paid on day 30, but it is only approved on day 25, there isn’t much value in being paid early. Invoice automation allows our customers to drive down their approval times while removing a highly manual, paper-based process at the same time. For context, there are ~100 million business-to-business invoices processed annually by Taulia. If these invoices were on paper it would require around 10,000 trees every year.
As the use of the platform grew, more and more suppliers joined around the world. Our customers asked us to add a way for 3rd-parties to fund early payment. Supply Chain Finance was the answer and Taulia entered this already established space.
Short Tail Supply Chain Finance
Most large corporations buy from thousands or even tens of thousands of suppliers. Regardless of industry or country, we see the same dynamic in that the largest 1% of these suppliers typically make up about 60% of the expenditure. In Supply Chain Finance this is called the “short tail”. The thousands of small suppliers that make up the remaining 40% are called the “long tail” since that’s what it looks like on a graph of spend per supplier.
When Taulia entered the Supply Chain Finance market, banks dominated the space. For them this dynamic is of critical importance. They focus exclusively on the short tail because it is extremely expensive and challenging for them to onboard the breadth of smaller suppliers. This is for obvious reasons such as the required paperwork each supplier must complete to participate. However, when we looked deeper, we found bigger challenges. For example, one of our customers that had a traditional bank program needed one full-time employee for every 20 suppliers that joined. The effort to reconcile the payments and credit notes was so time consuming and manual the program simply could not scale.
3 years and 7 suppliers onboard, 8 years and 25 suppliers onboard, etc. We heard the same story of low program adoption over and over. From our experience with Dynamic Discounting, we knew there was a better way. A way to provide access to all suppliers, regardless of how big they are. This is the true promise of Supply Chain Finance and yet for decades it could not be realized.
Access For All
The promised opportunity stems from arbitrage. Large corporations typically have strong credit ratings and therefore can borrow money at low rates. The opposite is true for small businesses. They tend to be very risky to lend to and therefore they borrow money at high rates (if they can do so at all). With Supply Chain Finance, the financial risk being taken is with the large corporate buyer and yet the financing goes to the supplier. As a result, for small businesses it is often the cheapest money available to them in the market.
Providing Supply Chain Finance to the long tail became possible because of technology. With Taulia, supplier onboarding only takes 90 seconds. In two clicks, someone can elect to get paid early on an invoice. The challenge of reconciliation and credit note handling is solved by our platform and its deep integration with accounting systems. The user experience on both sides is excellent. It’s digital, automated and easy. With Taulia, Supply Chain Finance is scalable to even the smallest businesses within the largest supply chain.
When most large corporations start working with Taulia for Supply Chain Finance, they already have a bank-led program in place. While we start by doing what the bank couldn’t do with the long tail, we quickly find ourselves displacing them for the short tail. Why have two solutions when you can have just one. It’s true disruptive innovation.
What’s so unusual though is this is an opportunity for incumbent banks. Taulia does not provide the funding itself. The billions of dollars, euros and pounds that are being paid early, that’s not coming from us. For the past few years, Taulia has used a “multi-funder model” for Supply Chain Finance. Relationship banks can provide liquidity directly into customers’ programs in a transparent way without any insurances required. And again, technology is at the heart of the network connecting buyers, suppliers and funders.
Technology allows both Taulia and our funding partners to focus on our respective strengths. We provide the platform and they provide the capital needed for the programs. We’re now working together to support the Environmental, Social and Corporate Governance (ESG) goals of their clients, to provide inexpensive financing to small businesses, and strengthening supply chains around the world.
Taulia’s vision is to create a world where every business thrives by liberating cash. Two million businesses are connected to our network and counting. They have access to the best integrated user experience to collaborate, gain visibility and improve their working capital. Together with our bank partners we are turning our vision into reality.