Morgan Terigi, co-founder and CEO of Incomlend, provides an overview of the deleterious effect that the pandemic has had on companies’ physical and financial supply chains, and why digital supply chain finance ecosystems are best suited to help get SMEs the funding that they need.


The Covid-19 pandemic has disrupted many global value chains, forcing businesses to rethink how they navigate market uncertainty and weaker demands while managing pressures on liquidity to maintain cost competitiveness. However, despite the availability of government aid and stimulus packages, many companies remain financially fragile.

In the Asia Pacific, over 90% of businesses are considered small and medium enterprises (SMEs).

While they have grown their business due to globalisation, digitalisation and consumer demand for custom-made products and services, being plugged into the global ecosystem also means they have greater exposure to the volatility of transactional, multi-tiered supply chains. As a result, many have had to discuss short-term working capital options with financiers to bolster their cash flow, even as they remain optimistic about the recovery journey.

Although SMEs are acknowledged as engines of economic growth and social development universally, they continue to be constrained by a lack of viable working capital solutions and access to financing. The International Finance Corporation (IFC) expects the current global trade finance gap of US$1.5tn per year to grow even more due to the economic volatility following the pandemic.

Traditional financial institutions are often not well-equipped to address the needs of SMEs because of the perceived high risks and low predictability of their business. These SMEs may also struggle to demonstrate sustained creditworthiness, especially in the face of a pandemic. A survey by the Asian Development Bank showed banks rejected approximately 45% of the trade finance applications from SMEs primarily due to tighter anti-money laundering (AML) and know your customer (KYC) regulations. While these compliance requirements improve transparency in the financial system, they could prevent promising companies from receiving the financial support they need to expand.

Even when working capital loans can be secured, SMEs may face an extended onboarding process, additional collateral requirements or a lack of sound financial data. As a result, many rely on self-funding or loans from family and friends to sustain business growth. However, this might limit their ability to grow the business.


Providing a lifeline in uncertain times

In the Asia Pacific, 82% of companies have suffered from delayed payments from buyers over the past three years, and 73% have had varying levels of unpaid receivables. This impairs their ability to demonstrate positive cash flow and improve their credit rating. It also creates a knock-on effect on the supply chain. SME suppliers are significantly affected by buyers’ delayed payment terms and late payments as they cannot access the funds to plan and finance their business operations effectively.

Supply chain financing unlocks working capital and liquidity by allowing smaller businesses to extend payment dates to suppliers without impacting their credit scores. It also allows suppliers to get paid early or on time. In supply chains where SME suppliers are disadvantaged in their ability to access cost-effective financing, buyers and suppliers can benefit from these types of working capital solutions.

However, traditional supply chain programmes may not be available to all suppliers, especially those in emerging markets with smaller shipped volumes and the highest compliance costs. Buyer-led supply financing programmes are often implemented by larger companies, who determine which suppliers can participate, how quickly they can receive payment and the level of discounts required, with little input from suppliers. Payment is also usually made after buyers have received and inspected the goods. So, although the payment cycle is reduced, the supplier’s cash flow is still somewhat not liquid.

Trade financing instruments such as invoice factoring help buyers and suppliers bolster cash flows based on their trade cycles and existing receivables. For example, an invoice financing programme allows SMEs – specifically exporters – to finance their export invoices by selling them at a discount rate in return for receiving early cash for their receivables. Unlike supply chain financing, factoring allows the supplier to determine which invoices they will factor and when based on their cash flow needs. These elements can be factored into the pricing of their invoices. This enables SMEs to manage their operational expenses better.

They can also use their working capital more efficiently to finance their next production cycle or ramp up their output when there is an uptick in demand for their products. These tools allow suppliers to use their debts as security and mitigate debtor credit risks.


Digitalising the supply chain financing ecosystem

A positive outcome emerging from the Covid-19 pandemic is that companies – both large and small – have sped up the digitalisation of their customer and supply chain protocols to stay competitive. Digitalisation enables buyers and suppliers to use technology platforms to scale their payments processes and transfer funds at a lower cost.

In the same way, technology has led to a shift in business models and inventory management; fintech companies offer businesses tech-enabled, innovative solutions that unlock alternative working capital. Fintech innovators are now entering the global value chain to help SMEs get the funding they need to recover their financial health or capitalise on new growth opportunities. The emergence of new fintech and data analytics software also helps to reduce economic costs and risks in the supply chain by automating the onboarding processes and streamlining checks.

Global invoice financing marketplaces like Incomlend offer a proprietary platform that swiftly qualifies invoices and matches them with industry-leading private and institutional investors. It allows suppliers to monitor their finance submissions and transactions efficiently and track the status of funds matching with investors. Going digital will also improve processing speeds, and SMEs will be better able to respond to customer needs quickly.


Building business resilience

As global value chains continue to evolve and connect multinational buyers to diverse suppliers globally, SMEs are under pressure to unlock the working capital trapped in their supply chain. A strategic supply chain finance programme can enable suppliers to build the financial foundation they need to develop more resilient business operations without taking on the burden of loans. These off-balance-sheet funding approaches can also preserve the SMEs borrowing capacity. This increases their fiscal agility in planning new production cycles or expanding into new areas when the economy recovers.

About Incomlend

Incomlend is a global invoice financing marketplace for businesses and private capital. Founded in 2016, the Singapore-based company has processed more than 2,300 transactions and provides invoice finance services in over 50 countries worldwide. As one of the first alternative cross-border trade finance platforms globally, Incomlend enables companies to finance their export invoices by selling them to institutional investors at a discount.

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