Flexport’s supply chain management system removes a massive amount of frustration and opacity from logistics. The tight integration of its freight-forwarding service and its visibility into its customer's payment cycles creates an opportunity for Flexport to connect its customers to a unique form of supply chain financing.
What is Supply Chain Finance?
Supply chain financing benefits both buyers and suppliers, allowing the former to lengthen their payment terms as needed and the latter to get paid as soon as the product arrives at its destination.
- A financial institution makes an agreement with both the buyer and the supplier.
- This agreement states that:
- the financial institution will pay the supplier their invoice value immediately (minus a small fee or percentage) and
- the buyer will pay the financial institution at the end of either the original or an extended credit period, essentially allowing them to take on a working capital loan which gets classified as accounts payable.
- This allows both the supplier and the buyer to optimize their working capital as well as allowing the financial institution to earn low-risk interest.
Flexport has the opportunity to offer a uniquely low risk form of supply chain financing, given its tight integration with logistics partners and the high level of trust it has built with its customers. In practice, the process might look something like this:
This service would require the creation of new interfaces for all three stakeholders: the buyer, the supplier, and the financial institution. For buyers, the experience of choosing a supply chain financing option might look something like this:
For suppliers, the option to get paid early might be presented to them in an email like this:
A process for creating an interface for financial institutions would require:
- A competitive analysis of existing solutions and related systems,
- Interviews with both FI employees who might use the system and higher level decision makers who could design and approve the financial products being offered, and
- Interactive prototypes of potential solutions to evaluate usability.
Flexport’s insight into its buyers' supply chains and payment cycle histories could allow it to help financial institutions dramatically reduce the risk they take on when financing supply chains.
- Since Flexport has the ability to provide quality inspections, suppliers could potentially be paid at time of delivery to a Flexport logistics partner, days or weeks before the goods arrive at destination (although this increases risk, Flexport's visibility into their logistics partners' performance history can mitigate that risk).
- Flexport’s existing relationships eliminate costs that other financial intermediaries incur in collecting and verifying purchase orders, bills of exchange, and goods received notices.
- In keeping with Flexport’s commitment to providing the best service at the lowest rates, a Flexport marketplace for invoice financing would allow financial institutions to compete to provide the best rates and terms of payment for Flexport’s customers.
Flexport’s existing capabilities position it well to provide not only a better freight-forwarding service but also a greatly improved supply chain finance experience for its customers.
Note: I do not work for or represent Flexport. I am a product designer exploring new ideas for existing companies. All product concepts presented are purely speculative.