U.S. Bank, a major processor of transportation payables as well as a significant lender to supply chain operations, is teaming up with LiquidX to more fully digitize its supply chain financing.
“One of my strategies early on was to try and build a much more scalable business model, and that included being able to build a solutions set that was much more digitized and automated,” Dan Son, the head of global trade and supply chain finance at U.S. Bank (NYSE: USB), said in an interview with FreightWaves. “That is what LiquidX is bringing to the table.”
Some of those LiquidX supply chain customers already were being serviced by U.S. Bank in an existing relationship between the two companies.
LiquidX, on its web page, highlights that rather than just being a software provider, it also provides receivables, inventory and supply chain financing.
Those customers can now have easier access to U.S. Bank’s product offerings as well.
Fintech companies, Son said, generally just provide systems and platforms. But LiquidX “is an arranger of deals.”
In the prepared statement announcing the pairing, U.S. Bank said: “Suppliers and buyers will be able to connect their supply-chain systems directly to U.S. Bank and transact through LiquidX’s easy-to-use platform. U.S. Bank financing solutions delivered through this collaboration will enable suppliers to be paid nearly immediately and buyers to receive extended payment terms.”
“It is still our program, we’re the program administrators and it is our balance sheet,” Son said. “But ultimately we are bringing in LiquidX as the fintech supplier.”
LiquidX offers what it calls a “white-label solution,” in which its supply chain financing solutions operate behind a company’s existing financing activities, without the LiquidX involvement being front and center.
But Son said he had no interest in keeping LiquidX’s role hidden and that U.S. Bank wanted to announce its partnership with LiquidX up front.
Although U.S. Bank is a significant financial processor for the freight industry, it has no factoring activities. And the part of U.S. Bank’s activities that are headed by Son, and which will be teaming up with LiquidX, is not the part of the business that provides rapid freight payments to buyers and sellers. It’s not even in the same division; Son’s group is in the U.S. Bank segment known as Corporate & Commercial, while the freight activities are in the Payments segment.
The U.S. Bank financing activities that will now be conducted on the back of the LiquidX platform do not replace another high-tech tool; Son said it will replace activities that were “all done manually.”
U.S. Bank has been building its own platform to digitize its operations, but “that is going to be years in the making.” The way to get more digitization into the process rapidly was by teaming up with LiquidX, Son said.
In what Son called “the old days,” a bank “either bought a vendor system or built it in-house.” The system would be “more of a close-ended channel model.”
But now, Son said, a bank needs to be able to work with numerous other financing systems that are in place at supply chain buyers or sellers or their banks. “You can’t just have one channel and build it and everyone will come.”
Son said to “oversimplify” what his group offers, he cited programs that try to either narrow or widen the number of days a buyer or seller has to meet obligations in a transaction. A buyer wants to extend that time; a seller wants to keep it short.
“The Receivables Purchase Program allows sellers to convert credit sales to immediate cash flows and reduce days sales outstanding while extending payment terms for buyers” is how U.S. Bank described the existing operations in the announcement of the LiquidX deal. “The Approved Payables Financing Program helps buyers pay suppliers early, reduces payment-processing costs, and gives suppliers faster and more predictable access to cash.”
LiquidX’s primary backer is fintech provider Broadridge Financial Solutions (NYSE: BR).