LICUOS is one of the winners of the 2014 DEMOvation Challenge

LICUOS, the global B2B netting and payment platform, was announced a winner of the 2014 DEMOvation Challenge presented by Bank Innovation. The challenge was judged by five people who named seven companies winners of the challenge, and LICUOS was one of them:

  • Laurence Berkowitz, Advisor (Israel), Bank Innovation
  • Seth Kenvin, Advisor (San Francisco), Bank Innovation
  • Sam Maule, Manager, Carlisle & Gallagher Consulting Group
  • Philip Ryan, Editor, Bank Innovation
  • Dominic Venturo, Chief Innovation Officer for Payments, US Bank

The judges were looking for startups launched within the last 24 months that possess unique intellectual property or business models, or are differentiated from other FinTech startups.

Bank Innovation 2014

Thanks to the award received, LICUOS will participate at Bank Innovation 2014 (Seattle, March 3-4), the annual event for executives and innovators to collaborate and share ideas to improve customer acquisition and retention through new products and strategies.

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The DEMOvation Challenge is part of an overarching effort to make the Third Annual Bank Innovation event even more valuable than in previous years. LICUOS will present its technology to Banks, Credit Unions, Venture Capital Firms, Investment Banks, Start Ups and Technology Companies through a demo slot.

LICUOS also took part in 2013 in the FinovateSpring in San Francisco, Innotribe Startup Challenge in New York, the Thinking Digital Startup Competition in Newcastle, Next Bank – Innotribe Startup Disrupt contest in Madrid and SIBOS in Dubai introducing its innovative and technology for cash and working capital management.

Our technology

LICUOS´ core patent pending technology enables companies, regardless of their size or industry, to compensate, pay and finance their commercial debts, allowing them to reduce their funding needs and their client´s credit risk exposure. Our algorithms search and provide the optimized netting, payment and funding proposals for companies in an efficient, automated and cost-effective way.  Thus, businesses optimize their working capital and cash management activities and reduce their dependence on the banking system.

LICUOS will introduce the LICUOS Netting Hub and LICUOS SCF solutions. These solutions meet the needs of US Financial Institutions, Business Systems and B2B Payment Platforms:

  • The Netting Hub, implemented as an API to the LICUOS Platform, allows our partners (Business Systems and B2B Payment Platforms) an easy integration, and a fast delivery of multilateral netting based services through their platform.
  • The LICUOS SCF solution allows our Partner Banks to offer an innovative Supply Chain Finance solution to their customers (Businesses) that optimizes their working capital with a multi-tier approach, including suppliers at the Tier 2, Tier 3 level and beyond.

Thank you

We’d like to thank Bank Innovation, the judges and the Bank Innovation 2014 Partners for making the event possible.

For further information about Bank Innovation 2014, please visit: http://bankinnovation.info/.

Supply Chain Finance is more than improving Cash Flow

The goal of working capital management is to ensure that the firm is able to continue its operations and has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses, but Banks present Supply Chain Financing just as a tool for improving cash flow. Supply Chain Finance (SCF) is much more. SCF means:

  • Risk mitigation. Supply Chain Finance is a tool for minimizing the risk of supply chain disruption, which is one of corporates’ biggest risks and not only for improving cash flow. Supply Chain Management solutions providers can add a lot of value if they include innovative SCF tools to minimize the risk of supply chain disruption.
  • Business Process Alignment. In the physical supply chain, risks change rapidly from the order stage to the final delivery and from one tier level to another. SCF solutions can offer services that optimize the allocation of financial resources according to the different needs, and enable the proper alignment of the financing and cash management activities with the rest of the business processes along the whole physical supply chain.
  • Collaboration. Corporations have implemented business network applications to leverage the trust between buyers and sellers. Companies that collaborate effectively across the supply chain enjoy dramatic reductions in inventories and costs, together with improvements in speed, service levels and customer satisfaction.

Supply Chain Finance adoption

Currently, only a small percentage of companies are using SCF techniques, but more than half have plans or are investigating options to improve supply chain finance techniques. Slow adoption of SCF programs does not depend on lack of demand from businesses but on the resistance of the Banking System to change the way it operates. However, some banks are putting their factoring business under the wider Supply Chain Finance “umbrella”, trying to move from a traditional product-centric approach to a client-centric strategy. But client-centricity is not about naming but about solving the customer problem.

Banks’ reluctance to adapt their services to the new needs is causing the rise of solutions that promote the investment of available liquidity in one’s own supply chain, accelerating payments and cash collections, so that early payment discounts are seen as an asset allocation alternative with higher profitability and less risk than those offered by banks. This collaboration creates a win-win relationship for members of the chain, increasing their combined financial strength.

These solutions, although very interesting, do not meet the characteristics defined above. Can we say that a company has an integrated physical supply chain if it has only optimized its relationship with its direct suppliers? What happens if there is a stock issue further down the supply chain? As the integration of the physical supply chain has advanced incorporating a greater number of tiers of suppliers, SCF solutions should do so also.

LICUOS and the new SCF

LICUOS differentiates itself from other payment platforms, banks or SCF solutions as it goes one step further, leveraging not only the supply chain itself but also the network that each individual company creates from its own daily operations in order to find potential netting cycles that can compensate commercial debts.

Through this process, companies are able to minimize the number and volume of cash transactions, and hence, the banking fees associated with the same transactions. The solution allows businesses to reduce their dependence on the traditional banking system alternatives and at the same time significantly improve their working capital and cash flow management. By applying these techniques, businesses achieve an important reduction in their funding needs and credit risk exposure.

As Enrico Camerinelli, Senior Analyst at Aite Group, said in an interview conducted by Chris Davis at TreasuryToday, “if you look at what LICUOS are offering, that is exactly the sort of direction that I think SCF should be moving in”. In B2B networks companies are buyers and suppliers at the same time.  “Since you already have B2B networks allowing companies to transmit sales orders and other types of documents between one another, why not use those networks to carry out the task of matching payments? Then companies can benefit by being given opportunities for companies to use these balancing payments and debits as collateral to receive payments on time, for instance,” says Camerinelli.

More than a SCF solution

LICUOS is much more than a SCF solution. LICUOS is the first payment platform that helps businesses reduce their debts instead of just paying them. Winner of the Innotribe start-up disrupt, LICUOS is a global B2B payment platform where businesses, including public administration and nonprofit, can compensate and pay their commercial debts, allowing them to reduce their dependence on the traditional banking system alternatives.

LICUOS´ patent-pending technology generates the most convenient and efficient A/R and A/P netting, payment and funding proposals for businesses, significantly improving their working capital financing and cash flow management activities and reducing their credit risk exposure.

LICUOS, as the first Innotribe start-up disrupt winner, will be presenting at the Innotribe tunnel on Wednesday, 18 September at SIBOS in Dubai. The aim of the Innotribe Start-up Disrupt competition is to encourage and recognize financial technology firms that have the capacity to transform the Financial Services industry. The first Startup Disrupt was organized on 25 June 2013 at Next Bank Madrid.

LICUOS, Dubai and Islamic banking

Dubai welcomes Sibos this year with a special attention to the financial markets in the middle East. Middle Eastern Markets have been outperforming the SWIFT average growth in the rest of the world by 45%, according to SWIFT statistics.

The first modern commercial Islamic bank, Dubai Islamic Bank, opened its doors in 1975. In the early years, the products offered were basic and strongly founded on conventional banking products, but in the last few years the industry is starting to see strong development in new products and services.

Financial products that comply with the Shariah, are evolving from a novelty into a normal part of doing business in much of the developing world. However, the SME Shariah-compliant financing market is under-served and, as such, has substantial demand for solutions.

The core principles of Islam lay great emphasis on social justice, inclusion, and sharing of resources between the haves and the have nots. Islamic finance addresses the issue of “financial inclusion” or “access to finance” promoting risk-sharing contracts that provide a viable alternative to conventional debt-based financing.Image

Islamic banking principles and Working Capital Management

The feature that all Islamic financial products share is the absence of interest. Instead, the investments are set up as leasing arrangements or investments in which money is turned over to third-party trustees who share profits with Islamic depositors.

According to Ishrat Husain, former governor of the Central Bank of Pakistan, “there are two characteristics of Islamic banking which distinguish it from conventional banking. One is that every transaction has to be backed by real assets. Every loan should be backed by collateral such as real estate, business, etc. You cannot create wealth or money without associating it with real wealth creation. Second, the borrower is a partner in the business in which the bank has invested as financier. There is no guaranteed fixed rate of return. If the business is not doing well, the bank will suffer along with the account holder. In contrast, conventional banks offer a fixed return to depositors. The bank has to pay interest irrespective of the performance of assets.”

Because Shariah law forbids the payment of interest and trading debt is also not permitted, there would seem to be little common ground between Islamic finance and conventional working capital financing activities. But there may be more similarities than at first appears.

A key to the nature of Shariah-compliant working capital activities is that there should be no element of speculation involved in the deal. For instance, the price of the goods/services should be fixed and cannot be changed even if there is a delay in the repayment, as charging for the delay would be considered as interest, which is prohibited by Shariah.

Rather than providing a loan and charging interest on it, the bank effectively buys the asset and then sells it to an end-buyer, with the mark-up being the profit. And that’s an ethical deal – it’s a solid asset being sold. Typically, the bank will have ownership of the goods/services, buying them from supplier, and will then transfer them to the buyer. In this way the debt has been transferred to the bank through the transfer of ownership of the goods/services. The way the financier makes money from the transaction is through a mark-up in the value of the goods/services as sold to the buyer. The bank may apply the time value of money in his mark-up calculation, and then the price given to the buyer is fixed regardless of an early settlement, a payment on time or a delay of payment.

LICUOS´ Shariah –compliant netting platform

As Shaheryar Ali, Vice President, Relationship and Sales Manager at BNY Mellon, says “An Islamic treasury function, like a conventional one, must generate and utilize liquidity in an optimal manner. However, it must also function in accordance with Shariah principles. All practices must fit with the principles of Islamic finance. There can be no interest, no speculation, and no contingent speculative liability in any transaction. Yet as long as these principles are complied with, it is possible for a treasury services function to be Shariah-compliant and for there to be no difference between Islamic and conventional cash and trade. In fact, Islamic principles may help convergence because, in most examples when applied to the true methodology, neither cash nor trade are based on speculation.”

With limited Shariah-compliant products for SME customers, LICUOS launched a Shariah-compliant B2B payment platform to meet the cash management and finance needs of these customers. LICUOS is a global business-to-business payment platform where businesses can compensate and pay their commercial debts. The platform provides netting, payment and funding services for accounts receivable and payable for businesses, allowing them to reduce their dependence on the traditional banking system alternatives so that they can significantly improve their working capital and cash flow management. By applying our solution, businesses from all economic sectors and sizes, including public administration and nonprofit, will achieve an important reduction in their funding needs and credit risk exposure.

This product meets the needs of our SME customers seeking world class Shariah-compliant solutions to finance their local or international invoices. Our unique proprietary and patent-pending technology enables an efficient and highly secure processing of accounts payable and receivable transactions, 24/7 and in real-time, to deliver the best financial optimization and user experience. Our algorithms automatically identify and generate the most convenient and efficient netting, payment and funding proposals. They manage all of the associated transactions that allow businesses to significantly reduce or eliminate their commercial debts. LICUOS gives businesses full control and visibility into the payment process and allows them to easily communicate and negotiate with their business partners. We are able to support the working capital funding needs through a Shariah-compliant solution.

Supply Chain Finance and Islamic banking

The growth in Islamic banking that has been seen in the Middle East over the last years has been brought about by a response to the pent up demand for Shariah-compliant banking and combined with trend to converge cash management and trade finance services offered by the Middle Eastern bankers, this is likely to provide a significant boost to technology providers in the Supply Chain Finance (SCF) space.

As we explained in one of our previous posts, SCF refers to the set of solutions for financing specific goods as they move from origin to destination along the supply chain. In this environment, highly characterized by the integration of the supply chains, collaborative solutions have started to grow in order to enhance the negotiation and collaboration between suppliers and buyers. Currently, only a small percentage of companies are using SCF techniques, but more than half have plans or are investigating options to improve supply chain finance techniques. Slow adoption of SCF programs does not depend on lack of demand from businesses but on the resistance of the Banking System to change the way it operates.

Banks reluctance to adapt their services to the new needs and offerings is causing the rise of solutions that promote the investment of available liquidity in one’s own supply chain, accelerating payments and cash collections, so that early payment discounts are seen as an asset allocation alternative with higher profitability and less risk than those offered by banks. This collaboration creates a win-win relationship for members of the chain, increasing their combined financial strength.

In addition to this, there are other alternatives that go one step further, leveraging not only the supply chain itself but also the network that each individual company creates from its own daily operations in order to find potential netting cycles that can compensate commercial debts.

Through this process, companies are able to minimize the number and volume of cash transactions, and hence, the banking fees associated with the same transactions. These solutions allow businesses to reduce their dependence on the traditional banking system alternatives and at the same time significantly improve their working capital and cash flow management. By applying these techniques, businesses achieve an important reduction in their funding needs and credit risk exposure.

LICUOS is one of the few companies capable of offering this degree of innovative and disruptive processing. Among other Shariah-compliant principles, LICUOS complies with the Islamic principle of encouraging people to settle payment debt as early as possible.

LICUOS´s multilateral early-payment proposals (leveraging the complete supplier network) allow the buyer to utilize liquidity in an optimal manner collaborating with his Supply Chain. Faster collections mean, for the suppliers, more working capital, less need to borrow and reduced collections costs. This is a real commercial synergy. It does not just reduce the cost of goods. It does not just reduce the cost of borrowing. This reduces the cost of doing business.

LICUOS at SIBOS – Dubai

LICUOS, as the first Innotribe Start-up Disrupt winner, will be presenting at the Innotribe tunnel on Wednesday, 18 September at SIBOS in Dubai. The aim of the Innotribe Start-up Disrupt competition was to encourage and recognize financial technology firms that have the capacity to transform the Financial Services (FS) industry. The first Startup Disrupt was organized on 25 June 2013 at Next Bank Madrid.

LICUOS, the first payment platform that helps businesses to reduce their debts instead of just paying them, will present its features including its Shariah-compliant services.

LICUOS wins the 2013 Next Bank Madrid – Innotribe Startup Disrupt

LICUOS, the global B2B netting and payment platform, was announced yesterday as the winner of the “Innotribe Startup Disrupt” contest at Next Bank Madrid out of 9 finalists and more than 40 original participants. As Fermín Bueno, organizer of Next Bank Madrid, said: “the selection of the finalists was not easy as we have received more than 40 registrations of a very high quality”.

Next Bank Madrid and Innotribe look to gather the finalists of the Innotribe Startup Disrupt Contest as part of its search to find the most innovative and disruptive startup within financial services in Spain.

For the Next Bank Madrid and Innotribe competition, LICUOS competed against 8 other startups in the event supported by Wayra, a Latin American and European start-up funding firm created by Telefónica, as well as the IE Business School in Madrid. This year’s finalists were:

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LICUOS has also taken part recently in the FinovateSpring 2013 in San Francisco, the Innotribe Startup Challenge in New York and the Thinking Digital Startup Competition in Newcastle, presenting its innovative technology for cash and working capital management.

LICUOS´ patent pending core technology enables companies, regardless of their size or industry, to compensate, pay and finance their commercial debts, allowing them to reduce their funding needs and their client´s credit risk exposure. The algorithms search and provide the optimized netting, payment and funding proposals for companies in an efficient, automated and cost-effective way.  As a result, businesses are able to optimize their working capital and cash management activities and reduce their dependence on the banking system.

Thanks to the award received, LICUOS will participate at SIBOS (Dubai, 16 to 19 of September), the annual banking and finance conference organized by SWIFT, where it will present its technology to thousands of financial institutions and investors through a demo slot. Additionally, LICUOS will be provided access to a number of global initiative accelerating services:

  • 30 days of co-working in any of the 13 Wayra Academies and access to its network.
  • 3 months in Area31, the IE Business School Incubator in Madrid.
  • 5 mentoring sessions in the IE Mentor Network.

Currently, LICUOS is working with several Spanish companies in order to deploy a pilot version of their solution in the coming months, and is also building a strategic partnership network with a number of different consulting firms, financial institutions and business software providers.

“We are honored that the judges, Next Bank Madrid, SWIFT Innotribe, Wayra and the audience, selected LICUOS as the most disruptive startup” said Iker de los Ríos, CEO of LICUOS, “The Innotribe Startup Disrupt is a great initiative, where for a change we were able to make our pitch on home turf. We’ve spent the greater part of the last 6 months travelling across the US and Europe pitching our business to potential partners and investors, and its satisfying to know there is as much, or even more interest in fintech here in Spain“.

We’d like to thank Next Bank Madrid, SWIFT Innotribe, BBVA, Accenture, ThoughtWorks and the other Next Bank Madrid Partners for making the event possible.

For further information about Next Bank Madrid, please visit: http://www.nextbankmadrid.com/ or follow @NextBankMadrid on Twitter.

LICUOS selected as Finalist for Next Bank Madrid – Innotribe Startup Disrupt

LICUOS is pleased to announce that we have been selected as a finalist of Next Bank MadridInnotribe Startup Disrupt, honouring the company as one of the most promising financial technology and financial services startups in Spain and Portugal. On 25th June 2013, LICUOS will compete against 8 other startups to secure a place as a demo slot at the Sibos conference in Dubai in September.

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This year’s finalists are:

The event is supported by Wayra, a Latin American and European start-up funding firm created by Telefónica, as well as the IE Business School in Madrid. “The idea is to unlock some of the potential of Spain in financial services,” said Andrés Fontao, partner at Next Bank Madrid. “Spain has been the benchmark for innovation in financial services; the country leads in mobile payments. In Spain, anyone can start a financial services firm in their garage. That’s a threat to the traditional players – and the banks are trying to get as close as they can to the action.”

Fermín Bueno, partner at Next Bank Madrid, said: “With its strong banking sector, Madrid has always been an important global hub for innovation in financial services. Spanish retail banks were the first to introduce mobile banking to its clients in the early 2000s. What few know is that Madrid also has a very vibrant scene of fintech startups. We want to support the startups that have the potential to transform the entire financial services industry.”

According to Matteo Rizzi, co-founder at Innotribe, “when we did the Innotribe Start-up Challenge, we found that only two of the 250 applicants were from the Spanish/Portuguese speaking countries. Some 60 firms have applied for this Next Bank Madrid event. If we can ensure the quality of the start-ups and the process, the plan is to do five more events in Latin America.”

Iker de los Ríos, CEO at LICUOS said “one of these Spanish speaking startups that applied to the Innotribe Start-up Challenge was LICUOS which was selected as a semi-finalist of the Innotribe Startup Challenge.” LICUOS is a global business-to-business payment platform where businesses can compensate and pay their commercial debts. The platform provides netting, payment and funding services for accounts receivable and payable for businesses, allowing them to reduce their dependence on the traditional banking system alternatives so that they can significantly improve their working capital and cash flow management. By applying our solution, businesses from all economic sectors and sizes, including public administration and nonprofit, will achieve an important reduction in their funding needs and credit risk exposure.

We’d like to thank Next Bank Madrid, SWIFT Innotribe, BBVA, Accenture and ThoughtWorks and the other Next Bank Madrid Partners for making the event possible.

For further information about Next Bank Madrid, please visit: http://www.nextbankmadrid.com/ or follow @NextBankMadrid on Twitter.

For more information in English about this event, check out “Disruptive” Spanish and Portuguese start-ups to showcase talent in Madrid” by Elliott Holley, senior staff writer on Banking Technology at http://www.bankingtech.com.

FinovateSpring 2013 demo video

Video

We’re excited to announce that LICUOS’ demo from FinovateSpring 2013 is now live!

LICUOS was chosen as one of the 72 companies to showcase the newest and most innovative financial and banking technologies. We were given 7 minutes to give a live, real-time demo to represent our core technology.

Watch LICUOS’ CEO, Iker de los Rios, and Co-founder and Board Member, Lander Gonzalez, demonstrating the features and benefits of LICUOS´ services for businesses: Netting, Payments and Funding.

http://www.finovate.com/spring13vid/videos/LICUOS.mov

Finovate_map

Changing the Supply Chain Finance paradigm

Supply Chain Finance (SCF) refers to the set of solutions for financing specific goods as they move from origin to destination along the supply chain. SCF is one of the different methods used by companies to manage their working capital. In general, we can find three principal groups of solutions:

  • Negotiation of payment conditions
  • Financial institution services
  • Collaborative solutions

Inside each group, there are several specific methods but this range of solutions tries to give an answer to one of the troublesome areas explained in one of our previous post, the financing of working capital. As the access to banking credit is tighter than ever before and financing costs are rising, companies have begun to look towards other alternatives where the Supply Chain is a key element. In fact, the problem of working capital financing is not unique to crisis periods, but during these tough times companies have focused more than ever on managing their working capital needs.

One of the results of this focus has been the emergence of SCF solutions, with the overall goal of optimizing the working capital along the whole of the value chain, making it stronger and providing an alternative source of liquidity to all its members.

The first solution to address the issue of working capital funding was negotiation among different parties, with methods, such as deferred payment strategies, where the only goal was to advance receivables and delay payments. Overall payment due date negotiation between businesses is a zero sum game. Nevertheless, due to power and strength differences, the negotiations resulted always in favor of one of them, which impaired the smaller members of the chain with unfavorable payment conditions.

As a result of these problems, the solutions of intermediation proposed by Financial Institutions emerged. Factoring and Reverse factoring are just some examples. Both partially solve the problem of bargaining strength but add high costs in terms of discounting fees and interest rates. Traditionally, these solutions have been used by small and medium size enterprises to try to solve the consequences of the payment conditions imposed by larger players but, nowadays even high-rated companies are making use of them.

Exhibit 1. Financial institution services: factoring description.factoring

Nevertheless, these intermediation solutions create a huge dependency on the banking system. This has then turned into a significant area of concern for both Governments and large buyers, above all, among those belonging to sectors where the guaranteed smooth operation of the whole of the supply chain is essential, such as the food, automobile or chemical industries.

In this environment, highly characterized by the integration of the supply chains, collaborative solutions have started to grow in order to enhance the negotiation and collaboration between suppliers and buyers. Currently, only a small percentage of companies are using SCF techniques, but more than half have plans or are investigating options to improve supply chain finance techniques. Slow adoption of SCF programs does not depend on lack of demand from businesses but on the resistance of the Banking System to change the way it operates.

However, some banks are putting their factoring business under the wider Supply Chain Finance “umbrella”, trying to move from a traditional product-centric approach to a client-centric strategy but client-centricity is not about naming but about solving the customer problem. Banks reluctance to adapt their services to the new needs and offerings is causing the rise of solutions that promote the investment of available liquidity in one’s own supply chain, accelerating payments and cash collections, so that early payment discounts are seen as an asset allocation alternative with higher profitability and less risk than those offered by banks. This collaboration creates a win-win relationship for members of the chain, increasing their combined financial strength.

Given the complexities of modern financing and business to business payment techniques, invoicing including invoice automation and discount management initiatives need a framework to ensure that programs are approached on a strategic basis which bridges the supply chain, purchasing, accounts payable and finance organizations. These are some of the challenges that solution providers offering SCF and dynamic payables discounting solutions should face.

Exhibit 2. Early payment platform (example) description.dynamic_disc

In addition to this, there are other alternatives that go one step further, leveraging not only the supply chain itself but also the network that each individual company creates from its own daily operations in order to find potential netting cycles that can compensate commercial debts.

Through this process, companies are able to minimize the number and volume of cash transactions, and hence, the banking fees associated with the same transactions. These solutions allow businesses to reduce their dependence on the traditional banking system alternatives and at the same time significantly improve their working capital and cash flow management. By applying these techniques, businesses achieve an important reduction in their funding needs and credit risk exposure.

LICUOS is one of the few companies capable of offering this degree of innovative and disruptive processing. Throughout its innovative patent pending technology solution, LICUOS enables an efficient and highly secure processing of accounts payable and receivable transactions, 24/7 and in real-time, to deliver the best possible financial optimization and user experience. Furthermore, LICUOS gives businesses full control and visibility into the payment process and allows them to easily communicate and negotiate with their business partners.

The huge impact of multilateral netting on the credit risk and working capital management

Credit risk exposure and working capital financing are two of the main areas that concern businesses today. Currently these problems are being partially addressed by Financial Institutions but unfortunately they are not solving them efficiently. Banks offer, on the one hand, accounts receivable and business credit insurance to mitigate the credit risk exposure of businesses but these products are expensive and tight sales margins do not permit contracting them extensively. On the other hand, they offer short-term financing solutions to cover temporary deficiencies in funds so that companies can meet their accounts payable and other obligations, but credit is tighter and more expensive now than at any time in recent history and static discounts don’t reflect suppliers’ dynamic cash needs.

Peer-to-peer finance

Current solutions do not offer a suitable answer to the problems that businesses face. This has led, during the last few years, to the emergence of new entrants providing non-banking methods of financing to try to solve the problems commented above with a clear aim of banking disintermediation. This trend can broadly be described as “financial intermediation involving entities and activities outside the regular banking system”. Some examples of peer-to-peer finance (P2P Finance) business models that are trying to address the credit risk exposure and working capital financing problems are:

  • Peer-to-peer lending (P2P Lending) or crowdfunding platforms where individual or professional investors provide funds directly to businesses or projects allowing entrepreneurs to access funding in an easier and much cheaper manner.
  • Invoice discounting solutions that allow suppliers to obtain short term funding from their clients.

Obviously, these new channels are not substituting the traditional banking channel but they do complement it, giving businesses an alternative access to liquidity.

Additionally, not all disruptive and innovative solutions for the non-banking segment are emerging in the funding channel space. Following the same trend of banking disintermediation, new payment methods and platforms are also appearing. The new online payment platforms that are being developed are primarily focused on the individuals (P2P) or merchants (P2B) segments. When it comes to business-to-business (B2B) payments, there are some new entrants emerging that allow real time payments and provide businesses a greater visibility into the payment process, but they miss completely a much higher value-add capability such as debt multilateral netting, with which the need for money movements can be dramatically reduced, improving the system efficiency as a whole.

Although this multilateral netting process may sound extremely disruptive in the B2B payments area, it is in fact already being used in several areas of the financial sector, including interbank transactions, brokerage companies and intergroup subsidiaries.

  • Within the interbank payments, the clearest example is the Clearing House for International Payment System (CHIPS) in the United States which is in charge of processing fund transactions, particularly interbank settlements. Before effectively settling the funds, CHIPS executes a multilateral netting process of the different positions each bank has, so as to avoid mutual or cyclic payments, and reduce costs.
  • Brokerage companies and Clearing Houses perform the multilateral netting processes at the end of the day as part of their standard daily operations.
  • Multilateral netting processes between intergroup subsidiaries are also extremely common. In this segment, many multinational companies with subsidiaries in different countries and currencies utilize this methodology to save a significant amount of money.

 Multilateral netting benefits

Netting processes can help solving significant problems as described earlier. The multiple benefits that netting provides have been largely proven in other segments of the financial sector, but multilateral netting can also help businesses and governments both with their commercial debts and other financial obligations.

Multilateral netting capabilities allow businesses to only finance what is really necessary, thereby generating a significant costs reduction, at the same time that the facility to gain access to funding increases (compensating debts, companies´ financial ratios improve). Among other things, multilateral netting promotes early-payments, reducing credit risk exposure given that once the invoice is paid, the credit risk disappears.

Separately, as Lisa Pollack explains on the Financial Times´ Alphaville Operation sovereign debt net (http://ftalphaville.ft.com/2011/09/19/680436/operation-sovereign-debt-net/), multilateral netting would allow sovereign debt cancelation among countries: The EU countries in the study can reduce their total debt by 64% through cross cancellation of interlinked debt, taking total debt from 40.47% of GDP to 14.58% […] France can virtually eliminate its debt – reducing it to just 0.06% of GDP.”

The European debt crisis is the shorthand term for Europe’s struggle to pay the debts that have built up in recent decades. Five of the region’s countries – Greece, Portugal, Ireland, Italy, and Spain – have, to varying degrees, failed to generate enough economic growth to make their ability to pay back bondholders the guarantee it was intended to be. A powerful and efficient mathematical algorithm such as the one LICUOS has developed would allow the cross cancellation of interlinked debt. Even then, it would be necessary to solve a series of additional problems that are highlighted by Lisa Pollack:

  • Fungibility: “[…] sovereign debt varies along many parameters — currency, maturity, law under which it is issued, coupons, covenants…The list goes on and on, which leads to…”
  • Agreeability: “[…]  the only way to get there is to agree parameters for valuing certain attributes […] it can take years to agree on valuations”
  • Desirability: “[…] one may be holding certain assets and liabilities for a reason, whether one is a central bank, an individual, a pension fund, or an actual bank.”

These problems aside, the fact that the countries are maintaining so much interlinked debt (we can see the amount of debt in the “Eurozone debt web” developed by BBC http://www.bbc.co.uk/news/business-15748696) indicates that there is huge opportunity to solve, at least partially, one of the biggest problems Europe has.

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LICUOS, making it possible

With the problems of credit risk and working capital financing remaining unresolved by the financial institutions, a non-banking system of funding and payments has been created.

Peer-to-peer based platforms do try to provide an answer to these problems, and do so following the current trend of disintermediation of financial services, however they are not able to address the huge value-add that can be obtained through services such as debt multilateral netting. In this environment, and overcoming the shortfalls of existing solutions, we are proud to introduce LICUOS: www.licuos.com.

LICUOS is the global B2B platform that provides multilateral netting, payment and funding services to other companies that do not necessarily belong to the same group, in an easy, intuitive and automated manner.

LICUOS has developed a unique proprietary and patent-pending technology that automatically identifies and generates the most convenient and efficient multilateral netting, with completely automated payment and funding proposals that also manages all of the associated transactions that allow businesses to significantly reduce or eliminate their commercial debts.