Startup: Cashing In On Cash Crunch

Anuj Modi, a chartered accountant, got a specific request for a loan for three months from one of his clients, a supply chain vendor working with a large multinational food and beverage company. The vendor was expecting to get the payment of his invoice from the parent company in three months, and he needed the money to pay for staff salary, warehouse cost and other expenses of the company during this period.

After some query, Modi asked one of the investors who was looking for a safe investment option with better results to finance the invoice for three months. The deal was clinched with a promise of 15 per cent return on the investment.

“Both investor and the vendor were my clients and I put both of them together on a common platform. While the vendor was able to get the short-term loan at much below the market rate, the investor was able to get a good return on the risk-free investment. So it was a win-win situation for both,” says Modi.

The deal inspired Modi to leave his well-established career as a chartered accountant and establish MarketBills, a startup that helps smaller supply chain vendors to meet short-term financial requirements.

MarketBills is an invoice financing company that facilitates short-term loans to MSME suppliers by arranging investors for their financial need.

In India, lack of consistent cash flow is a major problem faced by MSMEs suppliers, who often struggle to manage their cash flow due to long payment terms. It usually takes 2-3 months for SMEs to payments from the parent company, they need to manage their monthly expenses like salary, utility bills, manufacturing costs and office expenses. Delaying these can take them out of their business in many cases.

According to a rough estimate, every year about 15-20 per cent of supply chain and MSME projects are forced to shut down operations due to lack of cash flow.

Mostly, the vendors opt for private lending, which is available at a very high interest rate, ranging between 24-36 per cent. MarketBills arranges the fund for such suppliers at much lower cost to the tune of 14-18 per cent.

“There are approximately four crore SMEs in India and this large number itself presents a big opportunity to us,” says Modi, adding, “While this was already done in an unorganised manner, we industrialise the solution with technological support, risk modelling and by looking into the legal compliances.”

The company has a registered list of both suppliers and investors. Suppliers list their unpaid invoices to raise funds against them which is virtually guaranteed by the companies against whom the invoices are raised. Investors have thousands of suppliers to invest in for short duration. The average duration of finance varies from 30 days to 90 days. Minimum investment amount is Rs 1 lakh and MSMEs can raise anything between Rs 1 lakh and Rs 1 crore. Once invoice has been validated, MSMEs receive funds in 24-48 hours.

“We have our in-built system to safeguard the finances. We attach a post-dated cheque from the lenders and personal guarantee from the promoters. Also, we have a legal team that looks at all the compliances. Moreover, short-term finance is less risky, because it is unlikely that the fortunes of a company will change drastically in 2-3 months. Even then we properly do a background check,” says Modi. For its services, MarketBills charges a fee from both investors and vendors.
In India short-term financing is a big market, dominated mainly by private lenders. According to IFC, the MSME sector has a total finance requirement to the tune of Rs 32.5 trillion. Besides, there is sufficient gap in the demand and supply of invoice financing.
Thus, the potential size of the market available to MarketBills is huge.

“We just work as a facilitator. While suppliers have access to faster funds at competitive rates, investors earn significantly higher returns on their investments, which is risk-free compared to equity or other traditional investment sources,” says Modi.

Future Forward
So far, the company has only registered clients, who were taken onboard after strict background checks about their credit history, legal compliances and other factors. In future, MarketBills will open to the public.

“We are planning to open it to the public in six months and for that we are already on a hiring spree. Also, we are looking for a dedicated technological arm, which at present is outsourced. It will help us gain better transparency and control over the business as we grow in volume. We are investing to expand our business,” Modi says, without divulging any details on the investment and the turnover of the company.

However this seven-month-old startup believes in a sustainable business model. “We are growing at a decent pace and are not chasing any unrealistic targets like 100 per cent or 200 per cent growth. We are focusing more on the quality of transactions and trusted customers rather than mindlessly chasing volumes. The best part is that most of our clients do repeated business with us,” Modi shares.

Recently, MarketBills was felicitated for its efforts to promote women entrepreneurship — more than 85 per cent of clients are women. It is educating women about their roles in making financing decisions, better investment opportunities as well as solving their working capital issues.