As the global economy restarts its engine after tumbling into the deepest recession in generations, suppliers and buyers are switching from survival to revival.
To ensure liquidity gets to where it’s needed, technologically enabled working capital tools offer an attractive opportunity to smooth the cash conversion cycle, while connecting deep pools of credit to the real economy.
From demand drops to shortages, inventory placement challenges and reduced productivity, the stress caused to supply chains by the Covid-19 crisis was unprecedented.
Today, as the recovery gathers pace, global manufacturers need to find the operational flexibility to serve buyers while maintaining adequate liquidity during an extended ramp up period – but few companies have the resources, or time, to spend 12-18 months negotiating and implementing a complex distributor financing programme.
Levantor, which has developed a technology platform to automate and simplify financing for both borrowers and lenders, says it has seen strong growth in recent months as corporates, new banks and specialist financiers continue to join. Since mid-2017, finance for over US$5bn of invoices has been provided via Levantor’s platform, with over US$1.5bn of that in the first half of 2021.
“We are really just making it very simple for a large panel of bank funders to choose those assets that they want and collectively in the funding panel provide all the credit that suppliers and buyers need,” says David Frye, CEO at Levantor. “All we need to do is just make it easy and then it just flows.”
The company provides sales finance, which is a simple, effective sales enablement tool. It helps sellers offer buyers the option to defer payment in order to support the buyer’s working
capital. Sellers are paid on time, or early if they wish, while buyers from well rated sellers can buy now and pay later, typically after they have collected on sales from their customers.
Unlike during the global financial crisis, liquidity is available in the market, and by combining the enabling power of technology to connect the world’s leading banks and institutional investors to buyers and sellers, working capital platforms can create scenarios where everyone wins.
“We are addressing the difficulty around getting capital to where it needs to be,” says Mike Humphreys, chairman and founder at Levantor. “We build a portfolio to fund a particular flow and introduce the opportunities to those funders on a weekly basis. The funder could be a local bank who has a particular relationship with the buyer, or it could be a bank who is interested in the buyer but doesn’t have a strong relationship with them. Through our platform, we can enable funders who have capital to deploy access high-quality assets that
meet their particular criteria, be that risk, return, or geography.”
In recent months, investors have become increasingly attracted to the uncorrelated nature of trade assets, but while their short duration and consistent returns make these assets a strong consideration for alternative fixed income or cash management and treasury portfolios, their perceived complexity remains a barrier to entry.
While funders get access to short-term, recurring flows at a time when they face a choice between extending maturities or taking on greater risk to maintain yields, sellers can ramp up sales by offering their buyers the option to defer payment, helping buyers fund inventory and
“We don’t finance one-off transactions and one-off purchases from company A and company B,” says Humphreys. “We sit in the middle of a regular flow between two trading partners who have a great importance to each other. This has the advantage of offering access to ongoing annuity funding flows. The close relationship between buyer and seller also minimises the likelihood of payment delays or defaults.”
Technology as an enabler, not as a solution
The fourth industrial revolution, with its advances in artificial intelligence (AI), distributed ledger, robotics, and the Internet of Things (IoT), is upon us, and new technologies are being
applied to automate a range of traditional manufacturing, sales and trade practices.
While for many solution providers, the application of new technologies serves to position them at the vanguard of innovation, technology in and of itself is not a panacea.
“The most important aspect, and one which is regularly overlooked, is to provide a technological platform that responds to the real needs of clients and partners,” says Daniel O’Hanlon, chief information and technology officer at Levantor. “We looked at the technology platforms available, and rather than adopt existing technology solutions or build a glitzy, opaque black box, we did the opposite. We designed and architected our platform to respond to our clients and partners business requirements, bringing the next step of digitisation and innovation to their business.”
From the issuance of orders and goods to the conclusion of the cash conversion cycle, Levantor’s proprietary technological platform provides a unique online digitisation process workflow. It enables the removal of paper-trails and courier-based deliveries by providing an end-to-end electronic bill of exchange, using e-signature platforms.
By removing the intermediary of physical signatures and transfer of paper, Levantor can provide a solution that brings results in minutes as opposed to the traditional days required to ship documents from one site to another.
Single, as well as multi-group signatory, solutions become quasi-instantaneous – not just locally, but also across international borders and transactions.
Meeting real needs
As digitisation gathers pace, meeting clients where they are in their tech journey is vital to ensure everyone can benefit.
“We have built a secure and robust, seamless, scalable proprietary platform to enable the automated processing of extended invoice listings without the need to deploy intrusive APIs or other links into our client’s systems,” says O’Hanlon. “Our innovative platform is purpose-built to fulfil real-time business needs, the process requirements of our sales finance offerings, streamline workflows and to ensure the success of all of our clients and partners.”
“We are able to encompass any of the different varieties of business processes that are needed,” he adds. “Whether it is digital or paper-based, we are medium-agnostic and can still make the whole process seamless and easier from beginning to end. Bringing digital solutions to hitherto paper-based processes is key to simplicity.”
He adds that the company’s current offering includes the possibility for all parties to sign the underlying bills of exchange electronically.
To date, Levantor has transacted over US$600mn of electronically signed bills of exchange, and is currently working on offering this technology to third parties, even where they are not Levantor clients.
By co-creating with partners, solution providers can ensure that what they are offering is both relevant and scalable.
“Scalability comes from bringing on more and more banks, funders, sellers and buyers. We are not doing low-value, high-volume financing. We are doing big-ticket, big flows, big suppliers, and big buyers,” says Frye. “We know that the banks and funders need simplicity.
They don’t want to spend six months doing systems integration. We know that many suppliers and the buyers have finite resources in treasury and therefore no appetite for big tech integration. For us, scalability is all about simplicity and that is what the platform does.”
Meanwhile, by working with sellers, buyers and funders, and building a system around their needs, pain points that would not usually come up until later on in the process can be taken out at source.
“We continually build new functionality to automate requirements and eliminate manual processing. One small but timesaving example is the configuration of different discounting formulas. We have bills that may reflect more than 100 underlying invoices and our system can compress those instantaneously into a single document. We’ve financed nearly a hundred thousand invoices in this way so far,” says Edward Till, COO at Levantor.
Financing the recovery
As global suppliers and manufacturing companies get to grips with a post pandemic cost structure and supply chain uncertainty, liquidity strain poses a serious threat to the return to business as usual.
Across markets, collection periods have increased, and buyers increasingly find themselves having to negotiate new payment terms with their suppliers, restructure bank facilities or even let go of large customer relationships. Building in stability will be fundamental and maintaining a reliable and constant source of liquidity by shoring up the customer payment side of the cycle is a vital piece of the puzzle.
The challenges inherent in providing credit to fund companies’ large, diversified global sales channels mean that traditional solutions simply won’t be enough. Combining the technology necessary to integrate seamlessly into existing processes while opening up the market to new sources of funding means that, as demand returns and global suppliers start to increase volumes, they can ensure they have the payment terms that they need to make sure that they can seize the opportunity to grow.
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