When a tech entrepreneur such as Nirav Choksi with decades-long experience in creating businesses decides to start a new venture after three successful exits, one cannot expect anything less than disruption. From software to a diversified trading and resource company to a family office fund and investment company, Choksi is now making a mark for himself in the B2B logistics segment with CredAble, a fintech startup aiming to position itself as a supply chain investment bank.
“All this began during my brother-in-law and CredAble cofounder Ram Kewalramani’s logistics stint, where he was the CEO of a leading people logistics company,” Choksi told Inc42.
Kewalramani encountered a large working capital gap as the company’s average receivables were in excess of 90 days, whereas the company had to pay its vendors on a weekly basis.
Besides speaking to traditional financiers such as banks and NBFCs to raise working capital, Kewalramani approached clients to enable early payment for the approved invoices against a cash discount. There, he encountered a stumbling block from the purchase department of the clients due to their inherent mandate to push payments as far as possible.
“This did not make sense as these clients (who were sitting with excess cash) were investing in short term liquid paper at 6% per annum while cash discounts offered by suppliers were much greater,” Kewalramani added.
According to analysts, with an average delay of more than 35 days, 41.2% of suppliers in India responded that payment delays result in additional measures to correct cash flows. “Financing this gap can become very expensive and time – consuming. This presented an opportunity for the client and suppliers to devise a funding solution which would represent a ‘win-win’ outcome for both parties,” said Choksi.
Distributors would like to extend their credit period to generate better sales and recover money to in turn help corporates with their receivables and make the supply chain more efficient.
CredAble: Two Core Platforms Making The Centre
There are two technology platforms working in parallel to support a business supply chain— the CredAble platform for enterprise clients facilitates funding at the post-invoice stage while the Just-In-Time Financing “Smart Contract” platform provides funding to suppliers prior to invoicing.
As Choksi explained, CredAble’s platform is integrated with the corporate ERP system, where approved invoices are uploaded. The suppliers then have the opportunity to receive payment upfront for a trade discount which is then financed by the corporate treasury or banks. The platform can be accessed by corporate entities, suppliers and banks.
For each invoice, suppliers choose a date of payment and specify a flat percentage discount in exchange for early payment. When an early payment request is accepted by a participating enterprise client, the CredAble platform facilitates the early payment on the selected date into the supplier’s account.
Similarly, for distributors, there are three interfaces. The corporate, distributor and the bank. The Bank processes finance via the platform for the distributor. The corporate decides whether to extend the credit period for the distributors.
“CredAble ensures that transactions take place within three or four clicks for any of its stakeholders, providing access to on-tap funding with minimum hassle and limited paperwork. Thus eliminating the need for bilateral negotiations with each vendor,” he added.
This further results in procurement savings on the platform. This is based on the natural difference of the creditworthiness of the corporate anchor versus that of its supplier. Since the programme entails the financial institution taking the credit call on the corporate and the vendor bids on the platform based on his creditworthiness, a natural arbitrage is created which is passed back to the corporate in the form of procurement savings.
Talking about monetisation, Choksi shared that for platform businesses, they work on a success fee-based model. There are no fixed, upfront or registration costs for either the corporate or their suppliers and distributors. CredAble’s own NBFC also participates in some of their supply chain financing programmes thereby creating a yield-based income.
Finding Way Through The Maze Of Challenges
CredAble started with three employees in March 2017. By March 2018, it had 12 employees and in just over a year, it has already reached 70 employees. Since the platform went live in October 2018, it has processed more than INR 300 Cr worth of transactions on a monthly basis.
Like every early-stage business, CredAble has had its own challenges along the way. Gaining widespread acceptance of CredAble’s non-traditional supply chain finance programmes, long sales cycles, long turnaround time in technology integration were a few among others. “However, customer acquisition follows a domino effect on our business. After securing our first few clients, which took a bit of time, the rest have started to follow at a much faster pace,’ he added.
The lessons from these initial teething issues mean the team became adept at getting processes efficiently deployed. “Now we can integrate our platform with the corporate ERP in a matter of 2 weeks,” said Choksi.
Also, in order to reach its target audience, CredAble uses an omnichannel approach which includes one-on-one sales, trade consortiums, savvy use of digital media and emails, print media and BTL activities as a go-to-market strategy. It also has partner banks and other financial institutions that give access to customers which helps CredAble get a holistic supply of new business.
Combating Risks, Beating Competition And More
Choksi acknowledged the competition from fintech players that offer the supply chain payables similar to CredAble. But he also pointed out the indirect competition from lenders that deploy their programmes directly with enterprises or with trade partners, but they differ significantly in terms of their value proposition. “However, these companies offer a one-size-fits-all SaaS-based solution. We are more consultative in our approach,” Choksi added.
Choksi believes that by focussing on product innovation, building a sales framework that can expedite enterprise sales cycles and by attracting and retaining top talent, they can continue to stay ahead of the curve.
Across the globe today, conglomerates engage with thousands of vendors and account payables crossing several billions of dollars in value. These accounts payables create huge working capital gap for suppliers, therefore, becoming a macro-economic indicator in many cases. In India, initiatives such as demonetisation and GST, have dented the situation.
In such a scenario, CredAble is working to add multiple programmes to optimise balance sheets. This will include going down the value chain to not only target direct vendors and distributors but also dealers, resellers, retailers and sub-vendors directly resulting in reduced cash-to-cash cycles by an average of 30-45 days. This unlocks a great amount of capital that is currently locked in balance sheets of large corporates due to delays.
CredAble is now looking to increase the number of transactions executed on its platform by 10x over the next 18 months. “We are on course to close $2 Bn worth of deal flow on our platforms in the next 12 months,” Choksi said.