Technology is at the core of transforming from traditional invoice discounting to dynamic vendor financing. It covers the entire supply chain and gives flexibility to every vendor to get access to this proposition as and when needed. To know more about the growth of supply chain financing, Rashi Aditi Ghosh of Elets News Network (ENN), had a conversation with Ankur Bhageria, Founder & CEO, Cashflo.
Please elaborate on CashFlo’s organisational journey and distinctive offerings it provides
Launched in 2018, CashFlo is on a mission to catalyse India’s GDP growth by fundamentally transforming how businesses pay and get paid. On the ground, this manifests in the form of supply chain financing, payments, and collection automation.
We started with dynamic discounting and vendor financing as the first suite of products. This enables us to reach scale and provide immediate credit relief to MSMEs across the country. We have scaled this over the past 4 years and now have 50+ corporate buyers and over 2 lakh suppliers in our network, with industry-specific customisations. Going deeper into the supply chain, we realised that the payments and collections processes are fundamentally broken – hence the foray into the B2B payments automation suite of products, which help the finance functions to be 100 per cent compliant with government norms, make complex payment processes simpler and improve efficiency.
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Kindly share some insights on the supply chain financing scenario in India.
Supply chain finance in India is not new, but it has been built keeping in mind certain constraints that have not been questioned. When CashFlo came in, we spent a lot of time on the ground talking to businesses and understanding how invoice financing fits into their day-to-day business. The insights are clear – simplicity and flexibility is the need of the hour. What was needed was a process that systematically reduces default risk and gives instant decisioning. What we built is a tool that gives 100 per cent flexibility and autonomy to each party, an instant decisioning platform, and a one-click process without compromising on risk mitigation. It is undeniable though that invoice-based financing is going to become the mainstay for providing working capital credit to growing businesses in India and all the tailwinds point in that direction.
How is dynamic vendor discounting creating a win-win situation for corporate and small businesses?
Invoice discounting is not a new concept. Buyers typically offer invoice discounting at a fixed rate to their top vendors for the past 10-15 years. Buyers use either their own treasury or bank lines to offer this proposition. Dynamic vendor discounting is an innovative concept, as it provides capital against invoices to all vendors (including long tail) – when they need it, at the rate they want, and for the amount, they need at that given point in time. It empowers the vendors to use this liquidity option as and when needed – effectively acting like an unsecured overdraft line, removing friction in interacting with the buyer organisation. Buyers, on the other hand, can leverage dynamic vendor financing to:
- Earn arbitrage on their own treasury or bank working capital lines and hence have better EBITDA margins.
- Extend credit to their vendors to ensure liquidity in the supply chain.
- Get extended credit periods from their vendors to improve their own working capital position.
Ways in which effective supply chain financing aids in an efficient buyer treasury management?
As I said earlier, buyers can leverage their own unutilised working capital lines or surplus treasury to make early payments to their supply chain vendors. Typically, a buyer’s cost of capital is in the 5 per cent -8 per cent p.a. range while the suppliers typically get unsecured credit at >18 per cent p.a. rate of interest. Through dynamic discounting, buyers can earn a risk-free arbitrage of 4-6 per cent p.a. while their suppliers get funding that is significantly cheaper than their alternatives. Through this initiative, buyers would ensure liquidity in their supply chain to support the sustainable growth of the business. It truly is a win-win for buyers and their suppliers. It’s a model that Corporate India is rapidly embracing.
What is the role of technology in supply chain financing and how is it evolving?
Technology is at the core of transforming the traditional invoice discounting to dynamic vendor financing – which covers the entire supply chain and gives flexibility to every vendor to get access to this proposition as and when needed. The other biggest problem that technology solves is data security. Our platform is built on proprietary technology that uses public data, consent-based data, network behaviour data on platforms, user patterns and the dynamic demand-supply of funds in a supply chain. This is used to determine the optimal rate of financing for each supplier. This pricing engine is the core that enables us to create a win-win situation for each buyer and seller and mobilise funds within the supply chain. We have built a modular and secure infrastructure with distinct product features and workflows that our customers can use based on their context – whether it’s receivable acceleration, payment via credit, automation SaaS, etc. The algorithm works on a real-time basis and helps the users in finance teams in simplifying otherwise lengthy and cumbersome processes e.g., reconciliations, data entry, manual negotiations, etc.
Also Read | Technological Advancements Changing the Dynamics of Supply Chain Finance Ecosystem
Please elaborate on CashFlo’s business expansion plans and growth targets.
We have recently raised our second round of funding, led by General Catalyst. Elevation Capital also doubled down on its investment from the previous round. The aim is to grow CashFlo’s product lines for the CFO function to become their one-stop Finance Automation & Payments platform, invest in core technology, and expand its category leadership in the Dynamic Vendor Financing market.
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