In business, cash is king. A company’s ability to pay its bills and finance its operations depends on a steady cash flow. However, businesses often face cash flow problems when their customers take longer to pay their invoices. This can create a ripple effect, causing the business to miss payments and damaging its relationships with suppliers. Supply chain finance is a way to address these cash flow issues. It involves using technology to speed up invoice discounting, making it easier for businesses to get the cash they need to meet their obligations. As a result, supply chain finance can help businesses keep their operations running smoothly and avoid the kind of disruptions that can damage their bottom line.
This column appears in TheWeek and is an interview summary of a fintech CEO of a Bangalore-based firm that specializes in online invoice discounting where business owners get an opportunity to raise funds for their working capital needs. As one might expect, there is strong demand for digital working capital options across industry segments, which has been on an upward trajectory for more than a decade, but of course an even greater focal point since the onset of the pandemic, especially among smaller businesses. We have covered the supply chain finance topic in various postings and reports over time.
‘The successive waves of coronavirus pandemic that swept over India had hit the Micro, Small and Medium Enterprises (MSME) segment the hardest, forcing many to shut down operations or lay off their employees. Cash flow problems were compounded by disrupted global supply chains. “MSMEs faced the twin challenges of high raw material prices and financial stress. Prices of metals and plastic raw material increased by 40 to 50 per cent over the last year, making it difficult for most of them to fulfil prior commitments and squeezing their cash flows,” Mohan Suresh, the chairman of Federation of Indian Micro and Small and Medium Enterprises (MSMEs), had told THE WEEK in March…
What the pandemic triggered was a tectonic shift, says Manish Kumar, co-founder and CEO of KredX, one of the largest supply chain financing platforms (SCF) in India. “Businesses had no option but to go digital. Whether you ran a kirana store or a large company, you needed to be digital. And that is where we came in,” he said.’
The piece goes on to discuss various things like the expansion of this fintech’s business model from invoice discounting into broader supply chain financing options. There is also a discussion of how various types of latest-gen tech is impacting the space. The interview summary follows, so for readers interested in a fintech perspective of what happening in developing regions (which generally applies to the SME space in general), worth a read.
‘During the pandemic—more specifically, during the first lockdown—several MSMEs fell into the trap of knee-jerk reactions, says Kumar. “People did not know what was going to happen, and everybody wanted to sit on cash,” he said. “[A company would] stop doing vendor payments, and, at the same time, collect as much cash from buyers as possible. This created a situation where everybody was trying to hoard cash, and nobody was willing to float the cash into the system. This happened because nobody had any idea what the world was going to look like.”…
In conversation with THE WEEK, Kumar speaks about technologies like Artificial Intelligence (AI) and Machine Learning (ML) providing pre-shipment finance solutions (always higher risk) in addition to post-shipment, and whether or not there should be more focus on providing growth capital (for expansion and growth) along with working capital (for payroll, operations and so on).’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
