We helped shrink the working capital cycle: CredAble's Nirav Choksi

CredAble is into supply-chain finance by providing liquidity programmes. It seeks to exponentially increase working capital flows by intermediating between corporates, vendors and banks. The fintech company is currently disbursing close to Rs 1,500 crore a month. It hopes to top Rs 18,000 crore this calendar year, and hit Rs 20,000-25,000 crore in FY22. NIRAV CHOKSI, co-founder and chief executive officer, spoke to Raghu Mohan. Edited excerpts:
 
How has the working capital world been during the pandemic?
 
It was easily available to large corporates, the mid-market segment, and to non-banking financial companies (NBFCs) and fintechs. A certain section of micro, small and medium enterprises (MSMEs) also had access to working capital, which was mostly secured. However, large corporates’ use of working capital is geared to their needs, and not towards their partners. Post-pandemic, they started borrowing a lot to ensure liquidity. Even those which would not normally borrow or were debt-free (or held back their working capital lines). It led to a situation where banks started financing these entities because they were more comfortable with the credit risk compared to MSMEs, other emerging corporates, or NBFCs. Banks pulled out money from NBFCs, fearing that they were lending to MSMEs and were not going to survive.

 

How does CredAble help shorten the working capital cycle?
 
We partner with large corporations and integrate into their enterprise resource planning (ERP) system. Once this is done, we interact with the vendors, and establish and negotiate what we call a “bankable rate”. If they had to go to a bank, what would be the rate they would have paid? Then, we work with a set of banks and bring them on to the platform to finance invoices. If the invoice is raised by an MSME or the vendor in the ERP of a large corporate, it would come on our platform and instantly get financed by the banks.

 
Why can’t banks do it directly for the vendors?
 
A large corporation works with four to five banks. What you want is a common dashboard or interface that manages all their bank integration. Which is why a fintech like us becomes very important in the middle. Banks traditionally have been doing this unilaterally. The problem is a bank’s core business is to lend, not to engage with vendors, onboard and negotiate rates with them. We address not only the large vendors, but also the smaller ones, which is what helps create scale on the platform.
 
To what extent have you managed to shrink the working capital cycle?

 
Within 15 days of raising the invoice, vendors typically get paid, but this is post-invoice. We also have pre-invoice, or just-in-time financing. If you were a logistics company serving, say, Hindustan Unilever (HUL), the minute the cargo reaches and you have been issued proof of delivery, we are able to finance up to 80 per cent of the value. Your working capital gap shrinks to 24 hours from 150 days, because you get paid every time you do a trade. So, your overall working capital cycle reduces dramatically — 80 per cent on proof of delivery, and the rest once the invoice is raised.

 
How do you price your offering?
 
We charge interest rates depending on the credibility of the vendor, and this ranges anywhere from 10 to 18 per cent, depending on the size and type of business (of the vendor). When we do post-invoice disbursements in partnership with corporates and banks, it is not debt on the books of the vendor, because they are selling their receivables. Hence, there is no recourse or collateral required — it is completely unsecured. For them, it never occurs as debt. So, tomorrow if a company doesn’t pay, the bank can’t go after the vendor, but will go after the company.

 
How is your platform different from the Trade Receivable e-Discounting System (TReDS)?
 
We cover all the vendors. The TReDS platform covers only MSMEs. Our platform is in partnership with large clients, and hence, it is integrated into their ecosystem. We put up invoices directly from them, and there is no need to further authenticate them. On the TReDS platform, MSMEs also have the option of uploading invoices, which has to be accepted by the bank. But then we are not an auction-platform, and don’t get banks to bid against each other like on TReDS. Our programmes are customised for clients, and bring in the banks dedicated to them. We onboard all the vendors and this is one programme. And when we do the next one, another set of banks will come in. But the terms are fixed and agreed upfront. There is no bidding or price-war.

 
Of course, on TReDS, MSMEs get the best rate, because banks bid against each other to get that going. But MSMEs can’t go to a TReDS platform individually and upload invoices. The client has to sign up to that particular TReDS entity. But then, it doesn’t assure that all MSMEs or their vendors would be onboarding it. MSMEs are at the mercy of large corporations as to whether all their invoices are to be uploaded or not. In our case, it’s different, because we pull in the invoices once the client signs up with us and the vendors are on-boarded. Their invoices automatically close through the bank. And they get financing against all invoices.