Two of the biggest gaps that we currently see in the finance stack for mid-market companies are in procurement and treasury management. Both are well-defined categories at the enterprise level, sustaining scaled specialist software vendors like Coupa and Kyriba, but there are few vendors that are purpose-built to meet the different but deeply-felt needs of smaller mid-market customers.
Procurement
Procurement is an area where we consistently see companies struggling as they reach greater scale, and developing a procure-to-pay capability for indirect procurement becomes important to ensuring velocity in approvals and payments, whilst also driving visibility into spend for greater control and risk management. As the procurement function develops its main responsibilities mature into identifying demand, processing spend requests, sourcing vendors and negotiating deals, managing commercial and contractual risk, and optimising existing vendor relationships.
Solutions from the core ERP vendors for indirect procurement and procure-to-pay are inadequate and inflexible, and simply don’t cover these processes end-to-end. These are complex processes and there are always multiple stakeholders in siloed teams, with their own data in systems that haven’t been historically consolidated. This has supported the growth of well-defined, large standalone platforms at the enterprise level such as Coupa and Ariba.
But these solutions are mostly too heavy and expensive for mid-market organisations, who are instead mostly hacking solutions together. In practice, this means that many are struggling with disconnected systems (ERP, invoicing, vendor management, productivity tools, accounts payable etc), and procurement has become a nightmare mesh of manual processes that require input from team members across different parts of the company. Ironically, these are also processes that also have a high potential for automation and can deliver clear and near-term ROI impact through efficiency gains, optimised spend, and lower payment costs. These are top-of-mind topics for management teams in today’s market environment.
Modern procure-to-pay challengers are emerging out of Europe — such as Pivot, Omnea, and Payflows — and taking on the challenge of addressing this mid-market sweet spot with lighter and more affordable solutions that are better-integrated into the mid-market software stack. They are typically starting in the well-defined category of procure-to-pay, promising to bring together previously disparate stakeholders and systems in the organisation into one platform, delivering extensive automation across routine workflows such as submission and approval requests, through PO and invoice matching, and finally payment processing.
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They are also helping buyers to consolidate processes that typically sat further upstream in the procurement cycle going deeper on inbound demand and request management and building into an emerging ‘intake-to-pay’ category that helps customers better optimise downstream spend and supply chain risk. On top of this, they are bringing previously enterprise features such as vendor portals, spend analytics & insights and renewal management to a much wider set of customers.
Others challengers, like Procuros in Germany, are moving further downstream into ‘order-to-cash’ by abstracting the complexity for mid-market buyers of setting up digitised supply chains with a connected network of suppliers to simplify onboarding, repeat purchasing, and data exchange through APIs and EDI, and flexible ERP integrations.
Naturally, there are challenges to succeeding in this space. Firstly, to ensure they breach the ‘willingness-to-pay’ threshold and prevent disintermediation, these platforms must be sufficiently end-to-end and successfully consolidate functionality from other systems. This is no mean feat. They must also deliver clear ROI in terms of both time savings and accuracy improvements through automation, optimised spend, and cheaper payment processing.
Secondly, from a technical perspective, they need to deliver fast time-to-value, with easy but tight real-time integrations into the core ERP and other user systems such as communication tools, risk/compliance, contract management, payroll, FP&A and more. Again, this is a significant product and technical challenge. Mid-market adopters are sensitive to ease of implementation and ongoing maintenance and it is these inter-system connections breaking down that is a primary concern for those considering adopting a novel procure-to-pay system.
But this also means that over time, these players have a landscape of naturally adjacent opportunities into which they can potentially expand, both inside the finance function (e.g. expense management, treasury, FP&A) and outside. Indeed, procurement is a much broader topic that extends far beyond finance into operations and supply chain, and we will pick up some of the opportunities at the vendor sourcing & operations end of the spectrum in a future post.
Treasury management
The second area where we see an under-penetration of tailored mid-market solutions is treasury management. Treasury sits right at the heart of cash management and therefore offers an opportunity for a successful challenger to build a deep and sticky system-of-record. Being so tightly wound in with the payables and receivables processes, as well as touching on planning, there is also significant surface area for players in this space to expand over time and build broader platform offerings.
SMEs often lack sophistication in this area and use generic tools like Excel as well as BI tools that may provide reporting, but typically don’t have the sophistication to action and optimise cash management. At the other end of the spectrum, established vendors (like Kyriba, 360T and ICD) serve the enterprise segment, although admittedly with limited user love. In the mid-market, there are few options.
But as with procurement, improving treasury processes has clear potential to deliver ROI. In today’s market environment, this isn’t just a question of improving cash visibility and forecasting; in today’s higher-rate environment, optimising capital management is driving much more significant returns on a company’s standing asset base. At the same time, on the cost side, treasury processes remain inefficient and require growing headcount to manage. This is most evidently the case for multi-entity or multi-geo organisations which need to manage inter-company relationships, cross-border payments and FX, hedging, and investments.
For some industry sub-segments — such as payments, lending, insurance and marketplaces — treasury is even a core business function with efficient cash collections and pay-outs right at the core of the customer propositions, and where higher volumes of payment flows make the automating cash management processes an absolute requirement to success.
We’re seeing a range of new challengers entering this space to meet these market gaps and needs. They are broadly building propositions that aim to support end-to-end treasury processes including account consolidation and bank connectivity, payments automation, accounting reconciliation, forecasting (including scenario planning), as well as FX and hedging features. And over time, these players have the potential to expand into broader risk management and working capital products.
Building a best-in-class product in this space requires solving a number of infrastructure and product challenges. Providing bank connectivity to support not just liquidity visibility, but also action real-time payment automation through local schemes is in itself a challenge given the variety of bank payment formats. Treasury systems must also be tightly wound into a vendor’s core ERP, accounting, billing and other payments systems and provide flexible forecasting capabilities.
To meet this complexity, we’re seeing a few different approaches from challengers entering this space tailoring their product to more or less vertically-aligned areas:
Focusing particularly on businesses where treasury is a core business function — like financial services and marketplaces — are companies like Atlar and Payable which (like Modern Treasury in the US) place emphasis on the automation of both pay-outs and reconciliations with platforms that are highly API-enabled and offer control features for improved risk management.
Targeting a more horizontal set of treasurers and helping them to take a more strategic role within their organisations are companies like Payflows, Embat and Palm, that are offering deeper reporting and forecasting functionality as well as payments functionality (with some, like Payflows, aiming to become a broader treasury-to-procurement suite)
And finally, we’re even seeing infrastructure-as-a-service companies starting to play more into treasury use cases; for example, Numeral, which provides European bank payment connectivity, or Formance, which is building open-source programmable financial ledgers
Treasury is also an area that remains relatively underserved for vendors even at the enterprise level, so we believe over time there is also an opportunity for successful players in this space to push upmarket.
As ever, we’re keen to meet companies building in these spaces, so please do reach out to our Partner Dan at and investors Zoe and Skye.
In the meantime, there are also plenty of other areas in this expanding market to explore. We’re planning to dive deeper into other finance and accounting areas in future posts including Financial Planning & Analytics and Billing stack, as well broader areas within ERP such as operations and supply chain. So watch this space!