Beat Syndicate 4242 of Lloyd’s has been working with tech firm Previse to launch a new technology-driven insurance offering that enables supply chain finance providers to pay suppliers instantly.
Under current supply chain finance programmes, suppliers are typically paid only when an invoice has been approved by the corporate buyer, who guarantees payment to the financier through an irrevocable payment undertaking.
Previse’s instant invoice payment technology, InstantPay, automates the process of checking invoices, using artificial intelligence to predict whether an invoice is likely to get approved by a corporate buyer.
“Corporates have millions of people who manually check invoices and it takes weeks if not months,” Paul Christensen, CEO of Previse, tells GTR. “So we’re enabling all of those invoices to be paid the moment they are received.”
Beat, a Lloyd’s of London-backed syndicate, meanwhile, will underwrite the pre-approval invoices against dilution risk, a term that covers the contingent risk that a large company won’t pay an invoice for legitimate reasons such as it being incorrect or fraudulent, or the goods were not correctly delivered.
This essentially means supply chain finance providers will be insured against losses should the corporate buyer decide not to approve an invoice that has already been paid using InstantPay.
Previse says its InstantPay technology has already been trained on trillions of dollars of real invoice spending to precisely quantify dilution risk. The solution prices the risk by analysing a wide range of features on an invoice, from category of spend to location and identity of supplier, currency and payment terms, as well as a company’s credit history.
Beat Syndicate is now underwriting its first pre-approval invoice payments for a large UK-based buyer and expects to scale rapidly to underwrite invoices globally over the next few years.
“It is a new insurance product that hasn’t existed before,” Rob McLendon, principal at Beat Capital Partners, which owns Beat Syndicate, tells GTR. “From an insurance perspective and a Lloyd’s perspective, this gives us access to an emerging class where we look at new risk and provide solutions. It’s a class of risk that gives us significant growth potential.”
Previse and Beat note in a statement that SMEs sell about US$31.5tn to large firms globally a year, much of which is marred by the problem of slow payments for SME suppliers.
In Europe, for example, 88% of suppliers report frequent late payments by business customers. In the US, Mexico and Canada, meanwhile, a quarter of all B2B invoices are paid late, according to Atradius.
According to Christensen, Previse and Beat are working with half a dozen banks around the world, including NatWest, and are in active conversations with a dozen more finance providers – banks and non-banks – who are interested in the solution.
The hope is that such an offering will change the nature of supply chain finance in the long run, not just by paying suppliers faster, but also giving more suppliers access to financing.
“The solution enables all the existing providers of trade finance to finance on day one instead of waiting for an approved invoice,” Christensen says. “But the most important piece is that it’s enabling the market to fund much deeper in the supply chain. Tesco may approve invoices from its biggest strategic suppliers in five days, but for tiny SMEs, it might take 30, 40, 60 days. So it wasn’t previously worth giving them supply chain finance, because it took so long to approve an invoice, whereas now, they don’t need to. This unlocks a massive scale.”
According to a recent working capital study by PwC, nearly half of all supply chain finance programmes are limited to 25 suppliers. The consultancy further notes that although financing solutions have seen an increase in popularity, the level of spend typical programmes cover “remains relatively limited”.