A product roadmap clarifies the why, what, and how behind what a tech startup is building. This week, we feature CredAble, a B2B supply chain finance company.
Logistics might be crucial to the operations of any large business, yet the sector most often faces a working capital crunch, with almost no quick financing options at its disposal.
While running a transportation business for corporate employees, Ram Kewalramani understood what was causing the fund shortage: a time lag between raising an invoice and disbursing it.
Ram got together with his friend, Nirav Choksi, who had experience building and scaling businesses in the technology and finance domains, to address the problem.
In 2017, they started CredAble, a business-to-business (B2B) supply chain finance company that partners with corporate entities to provide a scalable supplier and dealer/distributor financing platform.
“Our solutions are domain-agnostic and today we work with ecommerce, media, FMCG, manufacturing, and other domains,” says Ram.
Large corporate entities, he says, have thousands of suppliers and dealers that are critical to their supply chain. Growth of these suppliers and dealers is critical to the growth of the large companies.
“For this, the suppliers and dealers are always in need of funds, which is difficult for them to source,” says Ram. “Our platform provides short-term working capital solutions backed by invoices, proof of deliveries, and purchase orders raised between corporate-supplier and corporate-dealer.”
Suppliers, dealers, and distributors in the logistics sector are typically micro, small and medium enterprises (MSME), which have working capital requirements ranging from Rs 5 lakh to Rs 1 crore, according to several startups in the space.
Considering their working capital requirements, transactions enabled by CredAble worth Rs 1,000 crore a month, according to Ram, is a significant figure.
By early 2019, the platform was also able to shorten the waiting period for funding from three months —the time usually taken by non-banks and banks — to just a day, like most other lending platforms.
CredAble’s competitors include NeoGrowth Credit, Vivriti Capital, Shubh Loans, Happy Loans, Lendingkart, and Indifi Technologies.
CredAble has been able to carve a place in supply chain financing by addressing key challenges traditional programmes could not. These are:
- A scalable solution to handle thousands of stakeholders in the enterprise supply chain.
- Take creditworthiness of stakeholders out of the equation to democratise supply chain financing.
- Generate appropriate incentives for all stakeholders including the corporate anchor to run a supply chain finance programme.
CredAble’s platform uses data from invoices to personalise working capital requirements. The idea is to allow a large number of suppliers to receive financing. This works because of two systems: a custom-built loan management system and a proprietary working capital fund optimiser. The first allows all lenders to participate in the platform, the other ensures optimal utilisation of funds for lenders as well as corporates.
The fintech company launched its first product for the media industry. There were a few thousand transactions within a month. The next iteration was for e-commerce platforms, for which the transaction volume increased to a few thousands a day.
“What we’ve learnt is that the consumer demand cycle varies between domains and naturally, the financing requirements also tend to be unique to the requirements of that domain,” says Ram. “For instance, certain domains have large cash reserves and are in a position to take advantage of corporate treasury financing, whereas others prefer funding through banks.”
CredAble allows suppliers to avail of financing at three stages: pre-shipment, post-shipment pre-invoice, and post-invoice. After a two-minute digital onboarding (KYC) process, suppliers or dealers can choose from the options they are matched with to get money credited to them in real time.
According to him, the solutions offered by the platform have been adopted by several corporate entities and there is a pipeline of others looking to implement its products for their supplier and dealers.
The target is to enable five times as many transactions in the next six months, says Ram.
CredAble’s first offering, Dynamic Discounting Receivables Exchange (DDRX), catering to different suppliers, takes a corporate-first integration approach. This approach enables faster integration.
All the products are integrated seamlessly with any enterprise resource planning (ERP) system and fetch receivables and payables directly from it.
Being part of SAP and Oracle’s startup accelerators, CredAble seamlessly integrates into their ERP systems, which are also used by many of CredAble’s clients.
“The beauty of the platform lies in the fact that there is no change to the end-users of the system, i.e. those operating the standard ERP system will not have to tweak their practices in any way,” says Ram. “It is a plug-and-play system that can be set up in less than a week, digitising the entire workflow within the organisation.”
The tech stack
CredAble works in multiple segments, with suppliers and distributors that record monthly revenues from anywhere under Rs 10 lakh to above Rs 1,000 crore. For the platform, the goal is the same: to arrange timely financing. What varies is the method of delivery, depending on the quantum of transactions and individual transaction volumes of suppliers/dealers.
The product’s engagement model and onboarding programme is personalised to the profile of its users. The team has also made significant changes to the various machine learning models at its disposal. Credit assessment, fraud risk, and treasury optimisation models were all tweaked on a weekly basis to gain new insights, says Ram.
“The entire technology stack is set up such that individual enterprises will no longer have to spend resources on integrating with lenders,” he says. “Our platform is directly integrated with the lenders in their network, which removes all complexities surrounding the usual integration process.”
A bonus is the feature to auto-generate and digitally sign transactional documents for regulatory purposes, which Ram says eases apprehensions lenders might have about using such a platform.
DDRX provides enterprise clients with the option to maximise yields on their treasury cash. Instead of the standard practice of parking idle cash in fixed deposits and the like, corporates can allocate treasure money via CredAble’s treasury optimiser. “This allows them to generate greater returns, increase their EBITDA (earnings before interest, taxes depreciation and amortisation) margins, while simultaneously increasing their ability to pay suppliers,” says Ram.
Serving more segments
The initial product rollout lacked a pricing suggestion for suppliers, operating on a bid-based price discovery model. Suppliers could enter a preferred price to get their invoices funded and the platform would match suppliers with lenders whose preferences matched with the bid submitted by the suppliers.
“Although it gave us the optimal price, in the long run it didn’t work as well as we wanted it to,” says Ram.
The CredAble team realised it wasn’t just the suppliers that needed financing, but dealers and distributors too. As dealer profiles could vary greatly depending on their revenue streams, the platform had to incorporate changes to its onboarding programme.
The team then developed a solution for distributors — the Dealer Financing Exchange (DFX). With DFX, CredAble was in a position to unlock value across the ecosystem. But it ran into a new problem: how to facilitate collections with so many dealers distributed across so many places?
“With dealers, we were confronted with two tasks: having to deal with a much bigger pool of users, with widely different cash-flow requirements; and ensuring timely collections,” explains Ram.
These challenges were addressed with the implementation of a proprietary payments system, along with a complex virtual account structure that was built to identify the best possible payment routes. CredAble now has a high success rate on collections, he says.
“One of the biggest surprises was the near universal demand for advanced analytics and reporting across user segments,” says Ram. “Having a strong feedback loop enabled the team to identify this need in time and led to the launch of an adaptive analytics platform, where suppliers, distributors, and corporates could keep track of their cash flow in real time.”
The next product was Just-in-time (JIT) Financing, which, as its name suggests, seeks to unlock capital, just in time. It works on billable events, i.e. process milestones that necessitate the need for capital outflows.
A billable event could be goods being delivered by a truck in the warehouse, a show airing on television, meals delivered on an aircraft by a caterer — all funded in near real time. It works for clients of all sizes and the payment frequencies can be tweaked to suit a company’s preferences.
“JIT Financing enables clients to build a well-oiled, fast-moving financial supply chain, which in turn translates into a fast-moving physical supply chain,” says Ram.
“Our ultimate goal is to maximise participation from suppliers and dealers on the platform,” he says. “This led us to implement a machine-generated pricing suggestion model, which helped suppliers identify the rate of guaranteed funding for them.”
He explains that what matters more to suppliers is predictability of cash flows than their quantum.
“Suppliers prefer predictable to a potentially lucrative but unpredictable solution,” he says. “With automated pricing and guaranteed funding in place, we saw participation rates exceed our product goals.”
CredAble is now looking to expand to deep-tier finance with tokenisation, alternative financing structures for businesses, and trade finance.
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