Taulia Taps Fortune 500 To Finance Small BusinessesJune 23, 2014
Silicon Valley Business Journal
by Mark Calvey
San Francisco-based Taulia is enjoying rapid growth by providing small- and mid-sized businesses a convenient way to finance operations by accepting discounts on their invoices to some of the nation's largest companies that they supply.
This goes beyond the long-time discount offered for early payment. Taulia says its process of "dynamic discounting" with electronic invoicing allows large companies, including its clients PG&E (NYSE: PCG) and bottler Coca-Cola Enterprises, to take larger discounts for early payment than those traditionally offered. That effectively gives these big companies a better return on their cash hoards than they'd receive elsewhere, which is usually below 1 percent on risk-free investments in today's low-rate environment.
If the large company doesn't want to put up its own cash to take advantage of the payment discount, Taulia says it turns to pension funds, sovereign wealth funds and other institutional investors willing to pay the supplier early. The investor then captures the discount when the large company pays the invoice.
Taulia is taking the one-size-fits-all, traditional payment terms of "2/10, net 30" — or a 2 percent discount if paid in 10 days, with the invoice due in 30 days — turning this one-time discount opportunity into a more flexible option. Taulia's service allows the supplier to select any day between the invoice approval and due date in which they would like to be paid. The end result being that suppliers are paid when they need cash and the corporate buyer captures a varying discount based upon when they pay the invoice. If the payment to the supplier occurs sooner, the discount is larger, and if the payment is made later, the discount is smaller.
Taulia says it has captured discounts ranging from 0.1 percent to 2.25 percent, but the average captured discount is 1.32 percent.
"We're not creating debt for the supplier. We're turning their accounts receivables into cash more quickly," said Taulia CEO Bertram Meyer. That's an important distinction since it helps with the company's cash flow and credit standing.
Meyer is quick to say that suppliers needing cash more quickly through Taulia or other firms isn't necessarily a sign of a business in trouble.
"Growth is getting better and more small- and mid-sized businesses need capital to increase output," Meyer said.
Taulia itself is enjoying dramatic growth, adding staff and space. Taulia processes more than $100 billion in payments over its platform annually, a figure that's up three times year-over-year.
"The biggest constraint on our growth is the ability to hire engineers," Meyer said. The company is taking another floor at 201 Mission St. to accommodate growth. The company also has offices in New York and Park City, Utah, as well as London and Düsseldorf, Germany. Taulia plans to soon open an office in Sofia, Bulgaria.
Taulia has raised $37 million in venture financing from Matrix Partners, Trinity Ventures, Lakestar, Telus Ventures and DAG Ventures, among others.
Taulia enjoys an informational advantage over traditional lenders such as banks and factoring companies, which offer financing by purchasing a company's receivables at a discount, Meyer says, noting that his company knows an invoice is legitimate and whether it's been approved for payment. That takes away much of the risk when it comes to deciding whether Coca-Cola Enterprises (NYSE: CCE) is good for the money.
Meyer says the company's financing terms for the suppliers of these huge companies is more attractive in terms of price and convenience than other options such as factoring or credit cards.
Taulia, founded in June 2009, is also taking advantage of large companies taking longer to pay their suppliers, something of an arms race as bankers and analysts question why a company is paying suppliers faster than its competitors. That has the effect of shifting the financial costs from large companies with some of the world's lowest financing costs onto thousands of suppliers that have much higher financing costs.
Procter & Gamble, for instance, captured headlines in the Wall Street Journal last year when it said it would take weeks longer to pay its suppliers, freeing up as much as $2 billion to use elsewhere. But that means P&G's (NYSE: PG) suppliers have to bear the cost of waiting for P&G to pay.
Meyer says P&G is far from alone in taking longer to pay suppliers, pushing more small- and mid-sized companies to seek traditional financing or opt for "dynamic discounting" through firms such as Taulia.
Taulia says its clients include 50 of the largest companies found in the Fortune 500 or the 2,000 largest companies around the world. Pfizer was Taulia's first big win.
In a sign of how attractive Taulia's financing option is to many small businesses, the company says 25 percent of the suppliers it works with have requested payment be made immediately after an invoice is approved for payment rather than deciding with each invoice whether it wants accelerated payment with a discount. The discount is pre-arranged so suppliers know how much they'll pay for the cash landing in their bank account the next day.