What’s it worth?
One of the popular shows on the BBC is the Antiques Roadshow. The hopeful supplicant arrives with a piece of jewellery, a plate from grandma or a childhood stamp collection. Visitors on the show, in their typical British under-stated way, never admit to the question which is uppermost in their mind:
What’s it worth?
In order to assess the value of the object you need the following:
- To check the credentials of the expert
- To locate historical prices of similar pieces at recent auctions
- To study any documentation which accompany the antique such as receipts
- To establish the provenance of the piece (especially important for artwork or autographs)
- To study any specialised Hallmarks
If you are lucky enough to be able to have an expert in the field he will be able to give an accurate estimate of the antique which you can then use as a basis for sale, or to borrow against. However if you take your George III silver teapot down to the local pawnbroker he probably won’t ask for any supporting documentation, will misread the hallmark and give a low-ball estimate to reflect his ignorance.
In the Networked Economy valuing invoices is the same game. For many service businesses which have no physical infrastructure (plant or stock), their outstanding invoices may be one of their most valuable non-cash assets. But what is a bunch of invoices worth?
What is the equivalent of “the accredited expert” in the Network Economy who can give me the best valuation of my order book so I can value my business, or raise funds against them?
Traditional Factoring companies are more like a pawnbroker than the accredited antique expert. When you present them with a series of invoices, they don’t know if they are ready for payment at the customer, they don’t know the customers’ payment histories, they don’t know if you did the work, in fact they don’t even know if the invoices are genuine at all. They are as clueless as the broker who just weighs your antique silver teapot and prices it according to its bullion weight.
But in Network can act as the expert connoisseur of invoices, inspecting each one for hallmarks, sifting the fakes, reviewing documentation to come up with a much truer evaluation of its true value.
- The “accreditation” of the network can be assessed by its standards, backing, certification, references and customers
- The historical payment record of the customer can be assessed. For example a Fortune 500 AP department may pay 99% of invoices that are in the “Approved for Payment” state
- The Network can make available documentation such as confirmations, shipment notices, receipt documents from both parties to establish the likelihood the invoice will be paid
- A Business Network knows the “hallmarks” of a genuine invoice: T&Cs have been exchanged between buyer and supplier, both have agreed to an electronic “Trading Relationship”
- The Provenance of an invoice can be established: who created it, who received it, which exceptions were triggered, how those exceptions were cleared, when it was approved for payment
So the Business Network should be thought of as the grey-haired jewellery connoisseur with eye-piece in place, studying your invoice and coming up with a true evaluation. Just as a really keen expert may make you an offer there and then for your antique brooch which turned out to be worth more than you thought some Business Networks may make an offer to “buy” the invoice immediately now that its provenance has been established. “Buying” may take the form of accelerated payment from the customer himself (via Payment Terms adjustment) or from a bank (Supply Chain Financing).
One of the most exciting moment of Antiques Roadshow is when that old stamp book turns out to be valuable. One of the most exciting applications of the Networked Economy is allowing companies to understand the true value of their invoice book.