“Payments is one of the key areas that buyers and suppliers want to collaborate on today, but traditional financial services providers are failing to deliver the required innovation to make it possible. Traxpay and its B2B Dynamic Payments platform brings a refreshing advancement to B2B payments, enhancing how companies connect, collaborate, and transact across the supply chain.” -Susie West, Founder and CEO of SharedServicesLink
In a recent four-part series of interviews for Shared Services Link, Traxpay CEO John Bruggeman discusses in depth the details of Traxpay’s Dynamic Payments Platform. The series has proven to be very popular amongst the online community for leaders in finance shared services, so we thought we would bring the key points that were made to you all here.
The interviews cover the Traxpay mission to enhance business relationships and enable further visibility and liquidity throughout B2B networks, as well as the value that is added through the use of B2B Dynamic Payments for buyers and suppliers.
What’s Next For Invoicing and Procurement Networks?
In Part 1 of the interview, John talks at length about the current state of e-invoicing and e-procurement, and more importantly, what the evolution of these networks will look like.
Currently the market for B2B payments stands at $300 trillion U.S. dollars a year. This market, however, as John explains, can essentially be broken down into two distinct categories – B2B payments for direct goods, and B2B payments for indirect goods.
Direct Goods And Indirect Goods
The procurement process and implementation is strategic to an organization, and not just viewed as a simple tactic in the supply chain management process. As such, procurement can be separated out into two individual categories – direct and indirect procurement.
To explain, direct procurement describes the acquiring of raw materials – i.e. direct goods – that are needed for production, and which become part of the bill of materials of the end product delivered. A simple example would be a brewer acquiring hops to make beer. Typically, the buyer will make large quantity purchases at the best cost, reliability, and quality. If, somehow, there ever becomes a problem in the acquisition of the raw materials, then the company will no longer be able to manufacture its product and create revenue.
Indirect procurement, on the other hand, describes the acquisition of the various services and supplies that are required to keep a company functioning. So, things like office supplies, paying for reparation of equipment, and things of that nature. In other words, indirect goods that cannot be turned into profit, yet are still vital to keep the day-to-day business alive.
In the interview, John explains how the average company currently will spend nearly one-third of their procurement budget on indirect goods – which equates to a staggering $100 trillion in annual spend globally.
For the most part, the $200 trillion worth of payments for direct goods is a solved problem in the B2B space, and tightly managed by both buyer and supplier sides. But, the other one-third that remains for the payments of indirect goods – despite the many procurement and invoicing software solutions that are already in place – remains unsolved.
John predicts that over the next 3-5 years, B2B network service providers will be making serious moves to up their game and start providing solutions that meet the needs of indirect procurement. In fact, they have already begun.
This is by no means a new problem, but nonetheless it is one that has only just started to come into light in recent years. What companies all over the globe are discovering is the sheer disorganization of procurement across the workforce. The problem is especially apparent within large corporations, which may employ thousands and thousands of employees, most of whom will be involved in making purchases of indirect goods of some form or another.
The trouble comes when CFOs try to gain appropriate visibility and control of these purchases and their impact to cash flow, liquidity, and working capital – that is, in trying to ensure that every employee is using approved suppliers, processes, and documentation. For the sake of argument, let’s say a CFO is wildly successful in enforcing such a program. This would mean that all purchases for indirect goods would have to be done through a single (or a small number of) procurement software solution(s) (e.g. the domain of vendors such as Ariba, Coupa, Basware, Ivalua, and others). This would certainly provide a level of visibility and control – until the point when the payment is made.
At this point, all of the data that has been acquired in the procurement system gets lost the second it enters the banking system. This, as John explains, is what essentially results in two truths emerging: the procurement truth, and the banking truth.
The procurement truth contains all of the data that has gone into the transaction – the banking truth doesn’t contain any of this information, but rather the payment data.
This misalignment of the two truths, needless to say, causes many problems for CFOs who want to be able to have predictability of their financial picture, but can’t because of the gap between payments and transaction data.
Plugging The Gap
The solution, of course, lies in the ability to bring those two truths together, so that the whole truth of payments and transaction data can be made visible for all – and the Traxpay Dynamic Payments Platform gives rise to this ability.
John discusses this and more in Part 3 of the recording, which also delves into the realms of why business network providers are much better situated than banks to provide the solutions to the ongoing problems in payments. It is also why network providers can make much more intelligent decisions when it comes to offering financial products.