Ardent’s FinTech Influencer Series highlights innovative voices in the world of ePayables automation. This series is the go-to spot for progressive thoughts on how technology, transformational thinking, and revolutionary ideas are changing how AP work gets done. Continuing our FinTech Influencer Series, today we are speaking with Dave Skirzenski, CEO of Raistone Capital.
Ardent Partners: Welcome Dave and thank you for joining me today. Let’s get started. Please tell me about your background, your company, and how you ended up in the FinTech industry?
Dave Skirzenski: I attended university to study computer science and then became an early employee of Ariba, which was later acquired by SAP. This foundation helped me understand how procure-to-pay networks interconnect the global supply chains through technology. I subsequently joined Morgan Stanley which was developing one of the industry’s first supply chain finance solutions. I joined that team to apply my knowledge of technology and how to build a software / services company. It was a strong fit as trade finance requires finance, operations and technology to work together. Post financial crisis, I joined Citibank where I led their US supply chain finance business, and we launched many of the largest programs in the industry. Later, I joined Greensill Capital as one of the first employees. My focus was integrating supply chain finance (SCF) into technology companies such as Taulia and Oracle, helping these tech companies become FinTech companies. We enabled the supply chains using these products to request early payment instantly versus what would have taken several weeks for a bank led supply chain finance program.
About three years ago, recognizing some of the headwinds facing supply chain finance (price compression, political and accounting risk), I wanted to launch a seller-centric, receivables finance business with the same scalable innovations as we had created for FinTech led supply chain finance. Recognizing I would need access to a diverse set of investors covering investment grade to distressed risk, I launched the business within a large fixed income broker dealer. We subsequently spun the business out of the broker dealer after accepting investment rounds from a $30BN+ family office and the world’s largest asset manager, creating Raistone Capital.
Raistone Capital’s customers include banks and large enterprises who are looking for non-bank sources of capital. Customers also include many of the largest ERP, procure-to-pay and electronic invoice networks, who are seeking to offer structured trade finance to their clients (both the buyer and the supplier). We like to think of our business as the Amazon Web Services of trade finance, as our ‘finance as a service’ model enables tech companies to become FinTech companies. I am pleased to say that we are now one of the largest providers of working capital finance in the marketplace. There is nothing more gratifying than helping businesses to grow and prosper, and this precept is core to the value proposition of Raistone Capital.
Ardent: Coronavirus has disrupted business operations and supply chains on a scale that few ever thought possible, what impact has it had on B2B payments, and buyer/supplier relationships, in particular?
DS: The coronavirus accelerated many of the trends which were already occurring, such as the consolidation of vendors, sourcing from additional jurisdictions and the extension of payment terms by large enterprises. These events were placing a strain on supply chains who were facing a liquidity gap due to the longer payment terms many were forced to accept from buying organizations. Directly attributed to coronavirus were: further lengthening of payment terms (with 120 and 180 days becoming more common), increased revolver draws by large enterprises (which cut the trade finance credit lines available to those enterprises), reduced bank lending, curtailing of trade credit insurance availability, and the turning off of early payment programs by large enterprises (including dynamic discounting). Making matters worse, credit availability to small and medium sized businesses continues to be impacted by Basel III, which reduces a bank’s willingness to take credit risk against non-investment grade counterparties. Coronavirus also came at a time when supply chain finance was facing accounting and political headwinds due to its non-disclosed, non-debt, off-balance sheet treatment. Finally, large FinTech lenders such as Kabbage and OnDeck reduced or eliminated new lending.
Ardent: Liquidity is a major concern for many businesses today. What can enterprises do now to help their suppliers and get cash into the hands of those that need it most?
DS: Supply chains have always directly sought out sources of financing, but often do so inefficiently. Large enterprises can help by ensuring their supply chain has access to trusted, competitively priced and operationally simple forms of financing. A large enterprise must also recognize that a supplier seeking financing is a good thing, and suppliers may not raise their hands in fear that it conveys weakness. Ideally, enterprises should make available multiple financing options to the supply chain – dynamic discounting when they have excess cash, supply chain finance for their top 100 trusted suppliers (as the enterprise takes the supplier’s performance risk), a sponsored accounts receivable finance program (which allows financiers to make data-driven risk decisions using data provided by the enterprise), and an accelerated virtual card product for the long tail.
Ardent: Trade finance (also known as receivables finance and invoice financing) is receiving increased attention of late. What exactly is it and who does it benefit?
DS: Early payment solutions such as “1% 10 Net 60” or dynamic discounting utilize the enterprise’s cash to make an early payment to the supplier. These programs were often limited by how much cash the enterprise wanted to commit, how much negative impact it would have on their DPO (days payable outstanding) and the minimum (often high) hurdle rate the enterprise wanted to earn. Trade finance products eliminated these constraints by facilitating the early payment using third party capital from banks and non-bank sources, preserving the enterprise’s cash and DPO. The most common trade finance products are:
- Supply Chain Finance (SCF) under which the enterprise provides the financer a commitment to pay an invoice in full on a future date. The financer uses this information to pay the supplier before the due date, because they know they will collect from the enterprise in full on the due date. The only risk of the financer is that of the insolvency of the enterprise.
- Accounts Receivable Finance (ARF) under which a financer does not have the benefit of the commitment by the enterprise to pay in full, thus taking both the insolvency risk of the enterprise plus the performance risk of the supplier. There can be cases where the enterprise does not pay in full due to credit notes or other offsets to the amounts due to the supplier. ARF may be offered by the financier directly to the supplier, or co-sponsored by the enterprise who provides the financer with introductions to the supplier’s valuable transactional/historical information that enables data-driven credit decisions.
Benefits of these programs for buyers include Days Payable Outstanding (DPO) management (providing financing options to suppliers, gives flexibility to extend payment terms), supply chain stability (by providing solid liquidity), and favored customer (who supports the supplier’s liquidity). Supplier benefits include: Days Sales Outstanding (DSO) management (getting paid earlier for invoices due in the future), non-debt working capital (this is not debt, it is accelerating payment on a receivable), and the ability to accept larger orders or longer payment terms (due to the credit strength of the buyer).
Ardent: Recent events have taught us many things, what should companies be paying attention to now, in the short-term, as well as in the future? (Automation, technologies, remote work, B2B payment trends, etc.)
DS: Post the 2007/2008 financial crisis, we witnessed large enterprises ensuring they had multiple levers to manage working capital, such as Commercial Paper programs, sale of accounts receivable, revolving credit lines, and SCF. These were prudent and heavily used during the coronavirus pandemic. Looking forward large enterprises should carefully review the headwinds facing SCF programs and plan for alternatives. These alternatives could include complementing a bank-led program with a non-bank provider, offering a sponsored Accounts Receivables Financing (ARF) program to alleviate the accounting concerns of SCF, and deploying accelerated virtual cards to the long tail of their supply chain as a soft landing for a future terms extension. As enterprises continue to deploy best-in-breed procure-to-pay solutions across each spend category (e.g. contingent labor, advertising, indirect materials, freight and logistics, etc.) the enterprise should ensure that those providers offer embedded working capital tools for their supply chain. Suppliers, like consumers in today’s convenience economy, want a simple, low friction solution to obtaining working capital.
Ardent: As a FinTech executive, what advice would you offer enterprises to help position themselves for an economic recovery as well as future uncertainties?
DS: Working capital is the lifeblood of any company. That’s true for the enterprise as well as its supply chain. Many of their suppliers may have to cut staff due to their reduced working capital. As the economy restarts, recognize that increasing order volume will place a working capital stress on their supply chains. The longer payment terms the enterprise may have extracted from their suppliers may not be manageable by the supplier. Keep in mind the supplier’s own supply chain might be demanding shorter payment terms or even cash on delivery. We have seen a dramatic uptick in requests for Purchase Order Finance due to this significant cash conversion cycle mismatch.
Ardent: On a personal note, what is your favorite book or movie and what about it appeals to you?
DS: What’s most appealing to me is originality, such as the decision to cast Toby Maguire as Spiderman versus a well know actor, the unknown cast of Parasite, the cinematography of La La Land and the twist of zombies running fast in World War Z. As one who continuously strives for innovation, I enjoy creativity that does not rely on the sequel mentality or that does not continuously recast the same actors.
Ardent: Dave – thank you for time and market insight.
