Taulia Collects $3.2 Million to Ease Payment Delays for SuppliersDecember 06, 2010
by Wade Roush
Just when you thought there couldn’t possibly be another massive inefficiency in the economy waiting to be fixed by Internet entrepreneurs, along comes Taulia. This San Francisco startup has figured out an easy way for suppliers of goods and services to get paid faster, and for the buyers of their goods and services—at least, those who use one popular brand of financial software—to pay less.
It sounds like such an obvious win-win that it makes you wonder why no one thought of it sooner. But only recently have enough big companies automated their invoice processing and accounts-payable systems to make administering such a process feasible, says Taulia CEO Bertram Meyer. And then it took some clever software engineering by Meyer and his colleagues to connect suppliers to their customers’ enterprise resource planning systems via the Web. (So far Taulia’s software connects only with ERP systems from the German software giant SAP.)
In essence, Taulia’s “invoicement” system allows suppliers to apply time-sensitive discounts to their bills, giving them more control over when they’ll get paid. The sooner a customer cuts a check, they larger the discount they get. “For suppliers, it’s a way to receive their funds earlier,” says Meyer. “And the buyer gets a discount at a rate that is interesting—usually in the low double digit range.”
Taulia thinks suppliers will like the dynamic discounting system because it will help smooth out their finances. If it’s the end of the month and a company needs cash to cover payroll, for example, it might be cheaper to offer a discount on a big payment owed to them—thereby triggering faster payment—than to borrow the money. (Of course, such a system could backfire if buyers used it to demand unreasonable discounts from cash-strapped suppliers. But Taulia argues that suppliers are happy to offer discounts to minimize the fuss and delay around collections.)
Taulia makes money by keeping a small percentage of the discount on each transaction. Given that a single large corporation could save tens of millions of dollars a year by taking advantage of the discounts Taulia enables, it’s no surprise that high-profile investors are interested in the startup. Taulia is announcing today that it has won $3.2 million in Series A funding from Waltham, MA-based Matrix Partners, Menlo Park, CA-based Trinity Ventures, and a band of individual investors in Silicon Valley called The Angels’ Forum.
Three things made Taulia’s business model appealing to Matrix, according to Josh Hannah, a general partner at the firm. The first is the way it rebalances cash flow in an economy that might best be called constipated—Fortune 500 companies are sitting on a collective $800 billion in cash right now.
“Once a payment is approved and flagged in SAP for payment, most companies just sit on it until day 60 for cash management reasons,” says Hannah. “But the 60-day terms on most invoices are an artifact of how long it used to take to process a paper invoices. It no longer takes 60 days—it’s more like 10 days. If the company that makes cardboard boxes for iPods has to wait 60 days to get paid by Apple, they are in effect loaning Apple money, which is ridiculous, becausethe box maker probably has a very high cost of capital, and Apple has a very low cost.” Not to mention more than $50 billion in the bank.
The second appealing point about Taulia, Hannah says, is the founding teams’ deep experience in the area of accounts-payable software. Taulia’s chief financial officer, Markus Ament, and the managing director of the startup’s Berlin office, Martin Quensel, both helped to code SAP’s basic payment software. Meyer, Ament, Quensel, and CTO Philip Stehlek all worked together at Ebydos, a Frankfurt-based software company that made an SAP-compatible invoicing system and was acquired by document automation software maker ReadSoft in 2006. Before these four even approached investors, they had built a working system and signed up one Forbes Global 2000 company to use it. “It’s a fairly rare opportunity to find a highly functioning organization with a system already in place,” says Hannah.
The third factor: the potentially huge profits, given that 60 to 70 percent of the Global 2000 use SAP. “We like it because you can charge for this product on a pay-for-performance basis,” Hannah says. “You can go to the treasurer of a company and say, ‘You are sitting on $10 billion in cash and earning 10 basis points [one tenth of one percent interest] on some money market account. If you paid your supplier early you’ll earn the equivalent of 10 percent annual interest for the money you advance. It simplifies things for everybody, and Taulia can participate in a big way in the value it creates.”
While it took a few SAP and invoicing experts to build Taulia’s software, the components are fairly simple to understand. There’s a Web-based portal for suppliers where they can see all of the invoices they’ve sent to customers. The portal shows which invoices have been paid and which are still pending, and it lets suppliers choose what early-payment discount to offer (or, in an interesting twist, to query buyers on what kind of discount it would take to shake loose an early payment).
Then there’s a small piece of code, written in the same language as SAP’s ERP software, that Taulia installs alongside SAP to monitor payments and pass that data to the Web platform. “There’s no change to the way payments are actually being made,” says Meyer. “It’s just that the buyer can, at any point in time, choose a [discount] rate that’s attractive to him, and the supplier then knows how much of a discount they would have to accept, so they can trigger that when they need it from a cash management perspective.”
Meyer says it’s the right time to add this kind of flexibility to automated invoicing and accounts-payable systems. “There is a change of mind happening right now,” he says. “Analysts are saying to the Fortune 500, ‘You have billions in short-term investments at basically zeroreturns, what are you going to do with all this cash?’ And typically the answer is, ‘We are waiting for an M&A opportunity.’ But dynamic discounting allows you to invest that cash at double-digit returns into your own supply chain. And if an M&A opportunity target does come along, you can just stop.”
Interestingly, Matrix learned that Taulia was on the fundraising trail through AngelList, a San Francisco-based investment opportunity clearinghouse that I profiled back in August. The Angels’ Forum had already invested in the company when a description of Taulia went out to AngelList subscribers. “As soon as that went out, we had 30 requests for introductions from almost every big-name VC in the Valley,” says Meyer. “I couldn’t even follow up on all the requests. But we felt a great personal fit with Josh and a business fit with Matrix and Trinity.”
The $3.2 million in Series A money will allow the company to hire more sales and professional-services staff as well as software engineers, Meyer says. The company is also seeking larger offices.
Eventually, Meyer says, the company plans to build connectors to other brands of ERP software. But SAP is so dominant that Taulia could mine that market alone for years.
“The next one would be Oracle, probably, but to be honest we have more interesting partnerships and products to pursue in 2011, and we are going to look to further platforms in 2012,” Meyer says. “SAP has a 60 percent market share, and in terms of annual spend, the SAP share among the Global 2000 is even higher than that. So SAP integration out of the box is a huge advantage. It doesn’t make sense to try to be on multiple ERPs yet.”