Gratis banking license for large corporations!

By Anand Nagaraj on Monday 6 November 2017

OpinionAlternative Lending

Imagine you are the Treasury Manager of a large manufacturing company and over a 100 vendors are queueing up at your procurement department trying to sell their products/services. This means you have leverage over your suppliers...... you decide whom to buy from, the price and the payment tenor. This is a great situation to be in and as a Treasury Manager, this opens up a few obvious possibilities for you to work on.

One of our clients decided to play the bank by conducting a survey to find out the borrowing rate of each of their suppliers. 63% of suppliers which were part of the SME segment had either no lenders or borrowed at an interest rate of 15%+ per annum. The survey also asked the suppliers if they would be interested in early payment at a competitive cost as the contractual payment period was fixed at net 90 days. As most suppliers expressed interest in availing early payments, the client approached us for a solution. 

The client’s objective was:

  • Make early payment to suppliers at an interest rate of 10% p.a thereby helping the suppliers to get finance at a competitive cost 
  • To earn an incremental revenue of 5% p.a

The borrowing cost of the client with its lenders was ~3.5% p.a which made it easy for us to quickly find a capital provider that was willing to fund the transaction. Invoice Bazaar platform was deployed, the supplier e-onboarding was quickly done and in the next 10 days, we could start making early payment to suppliers. The winner at the end of the day was the client as they started earning 5% p.a and also helped the smaller suppliers with their working capital.

Smart Treasury Managers/CFO’s across the world are helping their employers in either increasing their DPO (Days Payable Outstanding) or earning an incremental revenue like our client …………..helping the balance sheet and P&L respectively. 

It is also possible for large corporations, especially those that operate in negative working capital cycle (example: retailing), to use their own excess liquidity to offer early payment to suppliers without reducing the supplier payment terms – Dynamic Discounting.  

At Invoice Bazaar, we are happy to be part of an ecosystem in the Middle East, with clientele that not only includes global multinational corporations like Hamleys, Unilever, Britannia and Huhtamaki Group, but also equally proud that we are helping the small businesses with their working capital at a time when globally banks are shying away from SMEs.    

This article is a paid-for placement by Invoice Bazaar.

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