The Essence of Online over the Traditional based Approach for Bills Payable & Receivables

By Sundeep Mohindru, Founder & CEO, M1Xchange


Sundeep Mohindru, Founder & CEO, M1Xchange

M1Xchange is a multi-award winning online exchange for discounting of Trade Receivables for MSME enterprises in India.

A fabricator supplying goods to a White goods manufacturer receive payments as per credit terms, normally in range of 90 days from delivery of goods to the manufacturer. Fabricator normally has a manufacturing time lead of 45 days and has to invest in cost of production for 45 days. The total working capital requirement there­fore required to deliver the output is in range of 135 days cost of production. This work­ing capital is managed by the fabricator from working capital bank, basis his goodwill and collateral he can furnish. The collateral always falls short of loan requirements and therefore he has to manage his working capi­tal partly from bank and partly borrowing from private sources. Rate of interest offered by bank to MSME is in range of 10-12 per­cent p.a., and from private borrowers in range of 15-18 percent p.a. By getting his invoices discounted on M1Xchange, MSME fabricator will get his full payment on delivery of goods and services to white goods manufacturer, thereby reducing working capital require­ment from 135 days to 45 days approximate­ly. The rate of interest charged for discount­ing the invoice is in range of 8-10 percent p.a. which is at least 4-5 percent lower than his average current borrowing cost. Also, he re­duces the risk of collection of sales proceeds from White goods manufacturer by getting his invoice discounted.

"Traditional business models are re-discovering themselves with usage of technology and on same lines the customer is more informed and smart"

The premise of the M1Xchange is based on ‘connected’ supply chain is to break the silos between the functions (MSME fabrica­tor, White goods manufacturer and financier Bank) and interconnect them in order to im­prove visibility of the product as it moves in the supply chain from sourcing of raw mate­rials to consumption of the final product and its cash flow.

Optimizing Resources to Increase the Efficiency of an Organization
TReDS being a digital platform enhances the speed of making the finance available to MSMEs PAN India, and the decision making by the financier is simplified as the transaction between buyer and sup­plier is transparently reflected on the platform.

The major advantage of be­ing an online national exchange is centralised System, which facili­tates Buyer, Supplier & Financier to come on same the platform with one agreement binding all stake­holders. The approval of invoice by buyer enhances transparency of transaction and their commitment. The ease of use is very high for the financiers as trail of the transac­tion is online and involvement of manual labour is limited to approv­ing the transaction on the exchange. The connect with the customer is online, thereby reduces the time for financing transaction to few minutes in a day. This being cost effective also provides financiers access to a MSME client base without any ad­ditional cost and infrastructure for on boarding.

We infer that, ‘connectedness’ is synonym to the word ‘online’. Efficiency in the organisation is bound to increase where all the parties are connected on an online platform performing their tasks with transparency.

Creating Disruption in the Industry
Here are some advantages of on­line national exchange for receivable and payable –
1. Minimum cost
2. Much faster turnaround than un­conventional supply chain financing facilities
3. No manual paperwork fortransaction
4. Security of digital platform
5. Minimise the duplicate payments and other operational risks
6. Can be integrated with ERP sys­tems and avoid manual processes

TReDS is going to disrupt the MSME ecosystem, as the exchange allows MSMEs to post their receiv­ables on the electronic platform and get them financed. This will not only give them access to finance but also de-risk their business.

As an automated system driven platform, TReDS is expected to ben­efit MSMEs by facilitating them to auction their trade receivables at competitive market rates through transparent bidding process on the platform by multiple financiers. This will help not only quick realisation of receivables but also appropriate price discovery.

The Future of Online Platforms
Globally the phenomena of transact­ing business have changed. Online process has connected the buyer and seller transparently. The speed of business, cost of doing business has come down with a simultane­ous expansion in reach to customers. The change in human behaviour has already happened and we are going to see exciting times ahead with this change. Traditional business models are re-discovering themselves with usage of technology and on same lines the customer is more informed and smart.

The companies shall be open to adapt to newer processes and tech­nologies and be with the time to re­main competitive. They should part­ner with robust service providers to ensure smooth transition.

SMEs are the backbone of our economy for growth and employ­ment. We are proud to contribute in the vision of Government of India for promotion of MSME and support the development of Nation.

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