Newer players in the world of supply chain finance include logistic service providers. Until recently few saw them playing a key role in SCF, yet they know about financial and payment flows – and what goes where.
That was the opening premise of Federico Caniato, professor at Politecnico di Milano, who moderated the workshop session at this year’s SCF Community Forum in Amsterdam. For the past five years, the institution’s school of management has run an SCF Observatory initiative to develop knowledge and awareness as well as conduct research.
This analysed the current and future role of logistic service providers, the business models they fit into, whether they are independent or are joining forces with others such as financial service providers and the nature of the collateral.
Caniato introduced Adrian Samuel of Elavon Freight Payment, which is part of US Bank. He noted that in the US a whole industry evolved around the checking, billing and auditing of freight. In the 19th century truckers had to be paid with five days of invoicing, railroads within seven days; otherwise it was a cash-only basis. From this the National Association of Freight Payment Banks developed.
Elavon entered the industry on behalf of the US government, a notoriously bad payer, and developed a platform for them.
“There’s a lot of money – much of it tied up – in shipping, with €425bn spent within the EU in 2014 – a figure that’s increased since. Typically it represents between 3% and 12% of a corporate’s revenue,” reported Samuel.
“The challenge of freeing up cash is heightened by the fact that checking fright invoices is a nightmare. Rates are extremely complex and diverse. But transportation is a cash-intensive business, late payments can put your supply chain at risk and cause the shipper to pay for longer payment terms.
“Typically, one in three freight bills contain an error. Carriers also often give incorrect reference data to shippers. Pay your carriers on time and they’ll go the extra mile for you. Delay and they won’t, and the EU late payments directive makes timely payment even more imperative.”
Samuel reported that transportation is increasingly digitised, yet payments remain in the Victorian era and are still largely paper-based. “We see huge amount of audit errors, but digital invoice can be booked to correct general ledger coding, which makes the process a lot easier and ensures the invoice is correct. This, in turn, unlocks working capital.”
Savings can be up to 10% of the total freight spend if errors are ironed out and greater accuracy has been helped by a 30% increase in e-invoices in 2016-17, largely to comply with new EU requirements.
Elavon pays carriers once an invoice is approved and charges an early payment discount. This speeds up the cash-to-cash cycle, strengthens the supply chain and improves accuracy of invoices.
Its operations extend to a supply chain financing group, which seeking opportunities to expand via areas such as payment cards. The company has also launched an index tracking the costs of freight in the US.
Kees de Jongh of Cass Information Systems explained how his company accelerates invoice payment by reducing disputes and how optimising cash flow requires transparency on payment terms. Another US company, Cass is rolling out an international programme, opening offices in the Netherlands, Singapore and Sao Paulo.
“Invoice disputes slow down the audit process, potentially leading to payment delays,” he said. “So, there’s a need for clear freight rate agreements. Too often these are complex, opening up multiple interpretation and potential for disputes.
For ocean and air freight, the question of currency conversion arises and whether the rate should apply during shipment or when the invoice is issued. Oanda’s service is commonly used for currency conversion.
Fuel surcharges commonly imposed by shippers and volume calculation are other regular bones of contention. Another aspect that could be improved is the payment terms. While an invoice may request payment in 14 days, in reality actual payment can often take 60 days. “Unclear payment terms mean wasted time for admin staff on both sides and uncertainty for carrier on when payment will be made,” said de Jongh.
“Accelerate payment by agreeing clear understandable freight rates, and be honest and transparent on the payment terms,” he recommended. “Carriers should submit their invoice on time – and customers approve them on time.”
Wouter Lammerse of BlueRock Logistics said his tech company develops software for logistic service providers and multinationals such as shippers. He believes that innovation in the logistics tech sector is limited as – due to fragmentation – it lacks a clear leader; unlike, say, customer relationship management, where Salesforce is dominant.
“Many decisions are still taken locally and there’s a great diversity of different carriers, rates and rules. As tech provider, we ask ourselves what we can do to help situation.
“We realised we shouldn’t focus on big application that does everything. Instead our software architecture is based on small apps with only limited functionality – apps as building blocks. Each customer has different requirements and we select a handful of apps most appropriate to them. This combines robustness with flexibility and has seen us develop successfully over the past five years.”
BlueRock seeks to grow and plans a 2018 launch in China, with its ultimate goal to create a standard for the logistics industry. “Working from the bottom up is the only way to contribute effectively to society,” Lammerse added. “Blockchain is a transforming force but still in its early stages of development. In the meantime, we’re planning a platform for client that offers an audit of all its truckers that could be linked to SCF.
He was followed by Kris Jacobs of Bolloré Logistics, a logistics company active in various areas of the supply chain and one of the top 10 global players. He reported that a growing number of customers want freight payment audit of invoices. As it becomes more complex and time-consuming, many companies lack the resources to respond; hence the move to more technology-based solutions.
“There are no winners and no losers in this game – all parties stand to benefit as more compliance rules are introduced, as well as local rules and regulations,” he said. “Exchange rules and multicurrencies can also affect the way you set up your processes, meaning that you need a multi-functional team to be successful.
A recent customer-initiated project to produce more accurate invoicing saw the fault rate reduced from 30% to 6%. However, the company learned lessons in the process:
- Pre-implementation requires an assigned project manager and multifunctional team.
- Agree the rules of engagement and map the process.
- Follow an implementation plan and report all deviations.
- Be flexible in case of changes and track status and progress on a regular basis.
Post-implementation means assigning local ownership and monitoring the status regularly. It also means anticipating changes that could affect the process: for example, India recently introduced a new goods and services tax (GST), replacing a wide range of other sales-related taxes and duties.
Will Bolloré undertake similar projects for other customers? “A growing number have third-party freight payment requirements and we have an awful lot of data from different customers that we can use, including predictive data,” replied Jacobs.
Caniato concluded by noting the interesting developments wrought by technology and the bridging between different worlds.
“Some are moving faster than others and grasping the opportunities,” he concluded. “There’s great potential even before blockchain is introduced, with many students willing to become intern and provide new ideas. It’s not simply the universities on one side and the corporate world on the other.”