Counting down the final days until 2017, we wanted to take a brief moment to reflect back on 2016, and wish all of our clients, partners, and friends a very happy holiday season from the Rocketeers. It's been an incredible year for TradeRocket, a time that has seen tremendous momentum and excitement about what we're collectively doing to bring more working capital and operational efficiency to the marketplace. It's never lost on us that this wouldn't be possible without the broader TradeRocket community. We hope the holidays provide a time for you to recharge, relax, and spend time with family and friends. We look forward to continuing our journey together in the new year and beyond.
At TradeRocket, we remain as bullish about the future as we have since our inception in 2013. And as we prepare to look ahead with great anticipation to the new year, it’s worth thinking about some of the themes that are sure to shape our industry in 2017. Below are just a few worth considering:
Federal Interest Rate Increases
The Federal Reserve raised its benchmark interest rate this past Wednesday, which was widely expected. As we wrote about nearly a year ago after the last increase, it’s hard to tell what impact this will have on the middle market, or supply chain finance in general. That said, speculation is rampant on the impact it will have on many sectors of the economy, including home mortgages and the costs of U.S. exports abroad. Time will tell how many additional rate hikes may be in store for 2017, and how they may shape the near-term economic outlook.
The CFO’s Role is Rapidly Changing
As we’ve covered multiple times in our Twitter feed, it’s clear the role of the CFO as chief bean counter has become outdated. Today’s modern CFO is a true partner to the CEO, and has to balance a challenging range of responsibilities including technology, operational efficiency, team building, along with obviously the traditional financial leadership that has always accompanied the role. We are acutely aware of these changes, which drives much of our thinking in developing our platform to be the working capital marketplace of the future.
The Working Capital Needs of the Mid-Market and SMBs Are Being Heard
While awareness of a problem is never a guarantee of its solution, it’s at least a good place to start. And 2016 certainly sounded the alarm bells for SMBs needing more working capital, and being under-represented in trade finance deals overall. Late this year, the International Chamber of Commerce put some data behind these assertions, including a report that SMBs accounted for nearly 60% of all trade finance rejections. Other global issues were identified in this report, including major trade finance shortages in Africa, in particular. In the U.S., clearly there is a need to get more working capital in the hands of companies whose revenues fall between $50MM and $1B annually, a segment that we think about every day as we continue enhancing our platform.
Blockchain Looms as a Potential Game-Changer
While you could argue there’s still a great deal of hype surrounding blockchain, you also can’t argue there’s also a lot of promise there as well, particularly for supply chain finance at a global level. When companies like IBM are saying blockchain is poised to revolutionize business the way the Internet did, it’s time to stand-up and take notice. Trade finance has also been singled out as an application for blockchain by the likes of PwC, who see projects there moving from prototype to pilot. In the coming year we’ll be watching for evidence of blockchain moving past the promise phase, and how it can be leveraged in a successful working capital marketplace.
Earlier this year, new research compiled by American Express and Dun & Bradstreet looked specifically at the middle market, and its collective impact on the U.S. economy. While definitions vary on what constitutes a “mid-market” company (in this case, anything between $10MM - $1B), what is consistent is the fact this segment is a major driver of jobs and revenue. Some figures from the Middle Market Power Index:
The mid-market employs nearly 53 million workers in the U.S., more than double its numbers just five years ago (2011), leading national job growth for that period.
Mid-market companies contribute $9.3 trillion to the U.S. economy.
Middle market firms drive just over one of every four dollars generated in the economy, and comparatively, more than one in every four employees.
States with a higher concentration of middle market companies include the Rust Belt states of Michigan, Ohio, Wisconsin, Indiana and Illinois, as well as the east coast population centers of New York and Massachusetts.
While we’ve recently discussed what impact the mid-market has on trade finance, a broader question is what impact they have on the U.S. economy. Many private, family-run companies fall under the mid-market label, as do many suppliers to the Fortune 1000, which themselves are clustered in more traditional population centers such as New York, San Francisco, Chicago, Houston, etc. Evidence of the latter can be found by looking at industry vertical data; 18% of middle market firms can be found in the manufacturing segment, while that vertical represents just 3% of firms overall. Geographically speaking, for areas with a dearth of Fortune 1000 organizations, middle market companies often fill the void in offering consistent, stable employment that can have a significant impact on a local economy and future job prospects for its residents.
Looking ahead to 2017, how might the mid-market continue its rapid pace of growth? The Power Index survey reports there are roughly one million firms that generate between $1 - $9.9MM in annual revenues, representing the next group of companies to “graduate” to the mid-market. It is worth noting that 16% of this group is made up of women and minority-owned firms, helping to drive ownership diversity in the overall economy. Furthermore, a collective 60% of all middle market firms can be found in either manufacturing, wholesale trade, retail trade, educational services, and health services. While manufacturing growth can often be tied to macroeconomic factors affecting the broader economy, the latter four segments in particular represent areas with much growth potential. In any event, regardless of what 2017 may hold, getting working capital to this critical segment of the economy remains our mission.
Over the past few weeks, I have discussed working capital finance with people across a wide array of forums-- from Silicon Valley Innovation Center’s Banking Disrupted to Global Trade Review’s Mexico Conference, Money20/20’s annual pilgrimage, and conference rooms all over the U.S. and Mexico. As I reflect back on those miles, there were some recurring themes that rang clear.
When we think about working capital finance, there are issues that will arise in every jurisdiction-- compliance, regulation, the REAL cost of capital. These issues all obfuscate the real goal of any business owner (small, medium-sized, or large): When am I going to get paid? Alternatively, people think about, “When do I have to pay?” In combination, those two questions belie the desire for working capital certainty.
As we focus on the construct of working capital finance, whether it falls under the guise of dynamic discounting, supply chain finance, or trade finance, those two questions are at the root of the business owner’s working capital issues.
While there has been a fair amount of fintech discovery in working capital finance over the past year, the concepts are age-old financing mechanisms. As we and other financial technologists seek ways of making the process of working capital finance more efficient, we should keep one question in mind. Are we creating the means by which businesses can pay and get paid on their terms?
Chief Revenue Officer
In its annual trade finance survey for 2016, the International Chamber of Commerce identified several areas of concern related to the state of the industry. Specifically, small-to-medium sized businesses (SMBs) have a particularly difficult time finding capital for growth, as do organizations in certain geographic locations, like Africa. As noted in the survey, there was a 9% decline in the number of banks reporting an increase in trade finance activity for 2016, suggesting a slowing of trade finance at a time when the opposite is needed. Furthermore, smaller businesses were nearly twice as likely to get rejected for trade finance (58%) as were their large company counterparts (33%). As we look ahead to 2017, what lessons can we apply?
Allowing smaller enterprises to release capital trapped in their supply chain is key. Mid-market companies with revenues ranging from $50M to $1B, which includes many family-owned and private enterprises, often have difficulty accessing capital due to not being large enough to have an established track record, yet are too large for traditional small business loans. In many ways it is these companies really feeling the squeeze, as it’s often harder for them to obtain trade finance than those who are either larger or smaller, yet they are critical to growing the overall economy and the local communities where they’re based. TradeRocket’s primary mission is to help companies who find themselves in this position.
Increasingly, CFOs are being asked to grapple with technology and change management, demands to further reduce overhead, and strengthening their company’s capital position. These pressures, coupled with balancing day-to-day priorities related to managing teams, has made the position tougher than ever. TradeRocket’s working capital marketplace aims to help CFOs unlock their supply chain, while the platform can also bring much needed digitization to the finance function with features like AP automation and electronic invoicing. With everything in the cloud, all of this can be accomplished with minimal client-side IT support required.
Much of the first wave of financial technology, or “fintech”, really grew up in consumer-side finance after the financial crisis of 2008, as evidenced by the rapid growth of peer-to-peer entities such as Lending Club and Prosper in that time period. Commercial finance is the next frontier, leveraging technology to solve working capital problems, without being defined by the technology itself, or getting dragged into resource-crippling projects that have become the hallmark of many ERP implementations. Furthermore, newer technologies like blockchain can and should be exploited to further areas such as trade finance, again expanding its reach and scale to more and more companies that desperately need it.
Regardless of how each of the above plays out in 2017, now is an exciting time for trade finance. We look forward to addressing the many challenges head-on, and continuing to help companies critical to a global economy leverage technology to meet changing market conditions and growth demands. We hope you’ll come along for the ride.
Do you know how much it is costing you to process a supplier invoice? Would you like for that process to be less complex? I have the opportunity to speak to a lot of CFOs, Controllers and AP Managers. In these conversations there is a common theme: they are aware that their manual or semi-manual process is cumbersome, but they are not aware of how much it is costing them. Imagine, there’s the overwhelming piles of paper on top of the desks, the never-ending calls from suppliers asking when they’re getting paid, the slow review of invoices, etc. It seems impossible to run an efficient accounts payable department with all of these hurdles. However, it does not have to be that way. There are tools that can streamline these processes, and bring cost savings to boot. A solid AP automation program includes electronic invoicing, invoice matching, workflows, invoice and PO dashboards. All of these are designed to improve efficiencies, particularly in companies that process more than 3,000 invoices per month.
But don't just take my word for it. Experts like PayStream Advisors, Aberdeen Associates and others have estimated the cost to process an invoice manually falls between $10-20. Studies by AFP and Bank of America have estimated a cost of $3 per paper check issued, further highlighting the need for automation. Additionally, when speaking of time to approve, Aberdeen Group considers "best in class" AP performance to be an average of 4.1 days to process an invoice from receipt through approval for payment, with the bottom 30% taking more than four times that long. Aside from hard costs and inefficiencies, what else is driving CFOs and Controllers on the need for AP improvement?
1) Lack of visibility into invoices and AP documents. It can be frustrating to field calls from suppliers looking to get paid, and not being able to access their situation quickly.
2) Corporate directives to lower costs. CFOs are under tremendous pressures to eliminate unnecessary spending, and AP process is an easy place to find cost savings. Keeping manual records also creates an enormous amount of paper over time that needs to be stored and filed accordingly for safe record keeping, whereas digital record-keeping keeps this information stored safely and securely, and at your fingertips.
How can you resolve this? One solution is TradeRocket's AP Automation service. It offers solutions that can streamline the process and reduce cost without the hassle of lengthy implementation times. We take invoices submitted by vendors and process them through our platform, so all invoices look the same to you, and you have full visibility and control through our user-friendly dashboards. Once they are processed, invoices are matched with both purchase order and receiving documents for approval, and with our Workflows feature you even have the ability to create a process that allows the information to flow from one user to another. The best part? Typical implementation is only about 60-90 days – significantly less than the average 12-18 months. Plus, there’s little IT involvement since TradeRocket’s platform is in the cloud and very easy to use. All this allows us to lower your supplier invoices approval process costs to just a few dollars per invoice. Whether you’re looking to inject efficiency into your accounts payable, or need access to working capital from our marketplace of funders, our passion is helping companies modernize the finance department without changing your process.
Vice President of Business Development
Earlier this month, Global Trade Review hosted their 2016 Mexico Trade & Export Finance Conference. I was honored with the opportunity to speak on a panel that discussed creating greater value in Mexico’s supply chain.
With an estimated $378 billion of exports and $393 billion of imports in 2016, the Mexican economy relies on Trade Finance as an integral part of the business environment. A vibrant market of trade finance and trade credit exists to enable businesses of all sizes to thrive while serving the needs of their clients.
The 2008 financial crisis re-shaped the way global trade finance participants think and operate. Like our markets in the United States, regulatory concerns and the ever-increasing cost of risk-based capital has diminished the appetite for risk and, unfortunately, the availability of capital for many. Caught in this cycle are the businesses that need finance solutions the most, middle market businesses and SMEs.
Banks and other financial institutions, however, are in the business of evaluating risk, so the importance of tools that can help them better assess that risk is magnified in today’s economy. With this in mind, many of the conference panelists and attendees discussed solutions, whether process or platforms, that would facilitate more efficient means of finance among the whole ecosystem. Discussions revolved around amending existing regulations OR finding new means to address old challenges. Tools that can help financial institutions navigate a highly regulated space as well as provide them with timely information to better assess the risk environment are highly in demand. The development of durable, yet adaptable, financial technology to meet the needs of trade finance experts around the globe is a must.
As I sat with my fellow panelists from Greensill, HSBC, Bank of America, and the Bank of Tokyo Mitsubishi-UFJ Group, the relevance of this point was emphasized repeatedly. Whether it is the navigation of a tighter regulatory environment or the management of risk, FinTech can assist in ensuring financial institutions continue investing in this integral function within not only the Mexican, but global trade finance community.
Chief Revenue Officer
Effective immediately, TradeRocket is pleased to announce the appointments of John Monroe to Chief Operating Officer, and Jeff Gapusan to Chief Revenue Officer. Both reflect an expansion of responsibilities from Chief Financial Officer, and Head of Capital Markets, respectively. As COO, John will be responsible for all TradeRocket operations, including legal, human resources, customer service and sales support. As CRO, Jeff will be responsible for the company’s international client and field operations efforts, including aspects of client-facing activities such as sales, channels, client success and support, as well as professional services.
Prior to joining TradeRocket, John most recently served as the Treasurer for Wells Real Estate Funds, Inc., which raised over $10 billion of equity and acquired $12 billion of office real estate. Before coming on board with TradeRocket last October, Jeff founded Makai Advisory Services, focusing on the needs of institutional investors. He also served institutional clients in his various relationship management roles over the years at Cantor Fitzgerald and Citigroup.
Jeff will be speaking on trade finance later this week at the upcoming Global Trade Review Mexico conference, to be held this Thursday, October 20th, in Mexico City.
“Membership has its privileges.” We all know that slogan from American Express, which the iconic company used from the late eighties well into the nineties, and is clearly a campaign the retail finance industry has ingrained into our memories. It also represents an efficiency that has existed on the consumer credit side for many decades. If I’m a retail buyer and want to pay right away, I can just use cash. If I want to pay 30 days later, I pull out a credit card. For larger purchases, I can qualify for an installment loan and buy things like appliances and automobiles. In other words, as a consumer (buyer), I am in charge and can pay the retailer (supplier) whenever I decide, using my own funds or that of a credit card or installment lender (funder). So why doesn’t that same level of access to capital apply to small and medium-sized businesses, as well as the middle market?
According to Entrepreneur magazine, there are between 25 million and 27 million SMBs in the U.S. that account for 60 to 80% of all U.S. jobs. They are the drivers of the American economy. Furthermore, a study by Paychex states that small businesses produce 13X as many patents as their larger counterparts. So not only are SMBs driving jobs, they are also the innovators in our economy. Yet they remain an underserved market when it comes to working capital and trade finance. The International Chamber of Commerce (ICC) recently found that while SMBs submit 44% of all trade finance proposals, they account for 58% of all rejections, a disproportionate amount. For this critical audience, flexible access to capital just doesn’t work for them as it does for so many of us as consumers. The bigger guys? They don’t have the same set of problems, either. With a larger revenue base, track record, and concrete assets, most enterprise companies have no difficulty finding and qualifying for working capital, and at attractive rates. It’s the smaller players, SMBs through the middle market, who are truly driving jobs and innovation in today’s economy, but are struggling with this.
So how do we change this? At TradeRocket, we’re creating a marketplace where buyers pay when they want, suppliers get paid when they want, and funders deploy capital safely and efficiently. We know this process already works for consumers. It also works today for big companies, and we’re leveraging our marketplace to make it work for everyone else. In the next evolution of working capital financing, there is no more paper, everything is digital, trackable, and auditable. Taking an “Early Pay” or “Extending Payments” happens at the click of a button, and sounds so much better than factoring, which for many companies is not a preferred practice. Lastly, and perhaps most importantly, we don’t require a major technology integration that no one has the time or resources for, it’s all in the cloud. Getting working capital into the hands of companies who need it for growth is our passion - stay tuned.
TradeRocket has been selected to join an elite group of Silicon Valley visionaries, industry leaders and executives gathering to discuss the opportunities arising from emerging technologies. Our CEO Jim Eckstein will be sharing his expert insights on how fintech is changing small and medium business.
Join Eckstein at the Banking Disrupted | A Silicon Valley Leadership Summit in Palo Alto this Wednesday, September 14, as he presents “The Future of Working Capital Finance: SMB Edition.” Here’s a sneak peak at his presentation. You don’t want to miss it!
If you want to find out how to get up to $5,000,000 to improve working capital, visit our stand at the Conference or click here.