How marketplace finance protects your supply chain and puts spare cash to work
Two problems corporate treasuries deal with daily is the need to put short-term liquidity to work, and a longer-term issue of protecting supply chains from unpredictable disruption.
Both need to be closely watched to maximise treasury funds. Fintech financial platforms are an innovative way corporate treasurers can better manage these twin issues while at the same time, helping to resolve the cashflow problems of SMEs within their supply chain.
According to LendingStar CEO Steven Artamonov, is not a cash management solution, rather it’s an alternative to traditional modes of financing for businesses and investors.
“We are an operating platform which facilitates transactions online. When corporate treasurers integrate LendingStar’s marketplace finance into their management systems, it helps them focus on managing their cash flows, provides a short term operational solution to excess liquidity, saves time and money, frees up credit lines and helps reduce supply chain risk.”
Risks occur when the cash flows of your SME supply chain are disrupted. The domino effect of this type of delay is potentially costly, time consuming and disruptive. Since small businesses in the corporate supply chain often don’t have access to bank finance, cash flow relies on invoices being paid on time, or private loans for their working capital.
Artamonov says marketplace finance solutions help solve both issues. Transactions are straightforward and, by having all SMEs in a supply chain loaded onto the platform, treasuries can keep a close eye on individual enterprises, and lend a helping hand where necessary, by buying invoice which have been verified by LendingStar:
How it works
- If a corporate treasurer is interested in buying an invoice on the platform, they make a purchase offer with a discount to the SME.
- The SME accepts the offer and investor pays the agreed purchase price for the invoice.
- LendingStar will send funds deposited by the investor to the SME minus a platform fee of up to 4%. Investors are charge up to 1% of their returns.
Investors get returns once a buyer (the debtor) pays the invoice to LendingStar usually around 90 days. Funds are deposited in an escrow account managed by TMF Group.
For example, if an investor (corporate treasurer) purchases a US$100,000 invoice for US$95,000, they earn US$5,000. In this case earnings come from price difference, US$5,000.
Once the marketplace finance platform is integrated into a treasury system, corporate treasurers are free to pick and choose which invoices they wish to buy and can also check out special offers and discounts.
Risk and quality control
Cash strapped SMEs in Malaysia can upload invoices worth from RM5,000 to RM200,000 and payments are usually made within three days.
Each invoice is quality controlled by LendingStar before it is offered on the platform. To help investors make educated decisions, all invoices are rated from A, the highest quality to C, the lowest rating with the quality of invoices mainly determined by creditworthiness.
All receivables traded on LendingStar are verified and confirmed by buyers. Investors can choose to secure their invoice with trade credit insurance to reduce risk and protect their cash should the buyer default on invoice payments. Transactions are tracked and audited and the identity of each SMEs must be known before their invoices are uploaded for sale. Buyers are also able to confirm invoices with SME with whom they have business relationships.
LendingStar provides its platform free of charge. Fees are only charged for each successful service. The SME fee is up to 4% of the invoiced amount and investors are charged up to 1% of their returns.
“Marketplace finance strengthens all relationships along the supply chain because all parties win,” says Artamonov.
“SMEs have their short term financing needs met, as investors, treasuries get to earn better risk-adjusted returns compared to traditional investment options like fixed deposits, mutual funds and stocks. As well as helping lower SME risks by offering them early payments, buyers get to enjoy longer payment terms and discounts on invoices through LendingStar.”
Using Marketplace Finance, corporate treasurers can act as either buyers or investors. Those who act on behalf of holding companies can buy or invest in invoices of their subsidiary companies through LendingStar to achieve short-term returns.
The minimum requirement to invest in invoices is RM10 and since LendingStar is a web-based platform it can be easily accessed anywhere with an internet connection.
For more information about LendingStar visit the website.
For more treasury updates affecting your business in Malaysia, we invite you to attend CTCFO Malaysia, our inaugural corporate treasury event in the country, to be held at the Mandarin Oriental Kuala Lumpur on June 27. Expect presentations from LendingStar, Bank Negara Malaysia, Tan Chong Motor Holdings, Microsoft, UOB and many more….