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.

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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.

LICUOS selected as Semi-Finalist for Innotribe Startup Challenge

LICUOS is pleased to announce that we have been selected as a semi-finalist of the Innotribe Startup Challenge, honouring the company as one of the most promising financial technology and financial services startups. On 13th June 2013, LICUOS will compete against 14 other startups and innovators at Innotribe Startup Challenge Showcase in New York to secure a place as a finalist for the $50,000 grand prize and continuous exposure to investors and financial institutions via the SWIFT global community.

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Innotribe, SWIFT’s initiative to enable collaborative innovation in financial services, and a panel of industry experts selected 15 semi-finalists from hundreds of applications to enter the Challenge. LICUOS will pitch its solution to a panel of the financial industry’s leading angels, VC’s and decision makers. Innotribe brings together strategists, business and technology leaders, trend-setters and trend-watchers, and thinkers interested in taking action and shaping the future.

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.

Iker de los Ríos, CEO at LICUOS said “we’re proud to be recognized as one of the leading financial technology innovators by Innotribe, and believe this award will help us extend the reach and value of our community and become the de-facto industry standard for business-to-business netting and payment services”.

The winners of the Innotribe Startup Challenge Showcase in New York will receive the opportunity to attend SIBOS in Dubai where they will compete against other finalists from the London and Singapore Challenge Showcases.

Matteo Rizzi, Co-founder of Innotribe, says “I’m delighted to announce LICUOS as a semi-finalist and look forward to discovering more about the business. This year’s semi-finalists have assessed the developments and trends in the region and have identified opportunities in the market. The entrants have each demonstrated a forward-thinking and innovative approach to the financial sector and have developed start-up businesses which could have profound impacts on the future of the industry. I’m extremely excited to give LICUOS the opportunity to pitch its ideas to some of the top decision makers in the industry”.

We’d like to thank SWIFT Innotribe, Invest NI, HP, Level39, Sberbank and the other Innotribe Challenge Partners for making the Innotribe Startup Challenge possible.

For further information about the Innotribe Startup Challenge, please visit: http://innotribestartup.com/ or follow @innotribe on Twitter.

About Innotribe

Launched in 2009, Innotribe is SWIFT’s initiative to enable collaborative innovation in financial services.  Innotribe presents an energising mix of education, new perspectives, collaboration, facilitation and incubation to professionals and entrepreneurs who are willing to drive change within their industry. It fosters creative thinking in financial services, through debating the options (at Innotribe events) and supporting the creation of innovative new solutions (through the Incubator, Startup Challenge and Proof of Concepts (POCs). It is through this approach, the Innotribe team at SWIFT is able to generate a platform that enables innovation across SWIFT and the financial community. For more information, please visit http://www.innotribe.com/.

About SWIFT

SWIFT is a member-owned cooperative that provides the communications platform, products and services to connect more than 10,000 financial institutions and corporations in 210 countries. SWIFT enables its users to exchange automated, standardised financial information securely and reliably, thereby lowering costs, reducing operational risk and eliminating operational inefficiencies. SWIFT also brings the financial community together to work collaboratively to shape market practice, define standards and debate issues of mutual interest.

For more information, please visit www.swift.com or follow us on Twitter: @swiftcommunity and Linkedin: SWIFT.