So What’s the Big Deal with Tungsten Corporation becoming a UK Bank?
When famed London investor Edmund Truell and his brother, Danny (Wellcome Trust Investment head) started their company, Tungsten Corporation, they had plans to change the way businesses deal with their supply chains. Now, with recent news of them purchasing a bank and plans to start offering loans to small and medium-sized businesses in the UK, they can say with some certainty that they have done it!
The product that has granted them such success and acclaim in the business world (which eventually lead to them being listed on London Stock Exchange in 2013) is Tungsten Network, internet-based digital invoicing software platform that verifies and processes invoices electronically. Previously called OB10, it was one of the global leaders in the B2B e-invoicing, mostly competing with the long-present giants SAP in the field. Tungsten Network comprised of several thousand suppliers worldwide and is compliant with the requirements of VAT, tax and e-Invoicing legislation in countries where it’s present. Their clients include business giants, such as GlaxoSmithKline, Tesco, General Electric, British Petroleum and alike, but also a lot of smaller businesses who can really save a lot of money and time with Tungsten’s e-invoicing platform.
The company has recently closed the deal on purchasing the UK division of First International Bank of Israel (FIBI), once they received the approval from the regulatory agency that needed to approve the move. The bank will now, of course, be renamed Tungsten Bank.
The reason it needed to obtain the bank licence is their desire to do more than just handle billions of dollars (and pounds and Euros) in suppliers’ invoices, but provide loans to those suppliers that need money immediately and find it hard to wait for the money from their buyers. Lending money to those suppliers, mostly SMEs, is called invoice discounting. It allows a business to draw some money against its sales invoices before the customer has made the payment. To do this, the business borrows a percentage of the value of its invoice from a finance company, using the unpaid invoices as collateral for the borrowing.
Small businesses over the world have had it rough since the onset of the global international crisis, with lines of credit to smaller, riskier clients being drastically reduced. At the same time, globally (and quite prominently in the UK) it has gotten harder for SMEs to get paid on time, and that has created such a large problem that even the UK government has made steps to reduce the cost of late payments for small businesses. Some estimates, by the payments service Bacs, say that SMEs in the UK are currently owed around £40 billion, and a sizeable portion of businesses spend a lot of their time and effort in trying to get paid for the services and goods that they have provided a long time ago – payment of the bills in the UK is typically about a month late.
So, with other businesses owing you money and credits being almost impossible to obtain, what Tungsten plans to offer their clients might be a life-line for a lot of them. Their clients will be able to opt for the accelerated settlement of their invoices from the bank, at low rates and simply executed.
There is, of course, a group of players in the business field that will not be happy with this idea. Those are the factoring companies that have been providing a similar service to businesses that are struggling to get paid. Factoring is a financial transaction in which a business sells its unpaid invoices (or similar receivables) to another company at a discount. While those two practices seem very similar, they are different in one major aspect: in factoring, the deal is not confidential, i.e. the client is made aware that the factor has purchased the unpaid invoices and that it now deals with the factor, and not with the company it originally owed money. With invoice discounting the client usually does not even know about the loan being taken against the invoice they have not paid.
To SMEs, Tungsten’s plan to provide loans against unpaid invoices can provide a very welcome help to overcome financial dire straits, but they should also be aware that once you enter into invoice discounting deal with a bank, it can be quite difficult to leave such arrangements, because it’s quite easy to get dependent on the reliable cash flow from the bank, especially if you can’t rely on it from your customers.