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An Age-old Practice, Bill Discounting is the Best Way to Finance Working Capital: KredX CEO Manish Kumar


Delayed payments and the resultant shortfall in working capital is something that probably every SME has to grapple with in India. According to Manish Kumar, CEO and founder of bill discounting marketplace KredX, nearly 97% of SMEs do not receive payments for their invoices within the agreed time.

In an exclusive interaction with Sourcing Hardware Kumar explains how the KredX platform, which has discounted over two lakh invoices to date, is helping businesses source funds in an uncomplicated manner and also offering financiers quality return on their capital.

How are GST and other compliance requirements impacting the working capital needs of SMEs in India?

I believe that businesses today need to assess and align themselves according to the taxation levels and timelines. With the current GST regime, obtaining working capital has become a task but there are ways this can be solved. If a company aggressively follows the needs outlined within the GST regime like maintaining a healthy balance sheet, getting working capital loans or invoice discounting to access cash becomes much easier.

Since the introduction of GST, we have got multiple calls enquiring if we do GST refund discounting, which in itself is adequate proof that the new taxation system has indeed impacted the working capital needs of Indian businesses. While GST provides the advantage of an inverted duty structure for better cash flow, businesses too have to make GST payments which run into a few crores. This puts the liquidity under pressure, thereby impacting their cash flow. As such, businesses get relief because of a simplified process of the refund claim, and fast processing of refund – 90% of refund claim will be dispensed on a transient basis and 10% after verifying.

You have been evangelising bill discounting as a mechanism for financing working capital. Has this been done in India in the past? How prevalent is this practice globally?

The practice of bill discounting has been going on from very long. If you think about it, the concept of hundi has been used extensively in the country for ages, just that it was never really formalised. They were basically some kind of bill-like instruments which were written in vernacular languages and were used to pay and receive the value of goods exchanged in the course of trade. Then came the financial sector and slowly we shifted to what we know as bill discounting.

This practice of discounting bills globally is much more prevalent than we think and has been a recognised mode of alternative financing in the developed nations. With the changing time, a need of seamless working capital flow has been identified on a global level. Bill discounting is becoming the best form of getting working capital as there are no collaterals, and it is cost-effective and time-efficient. It also gives the added benefit of using the hidden items in your balance sheet, such as receivables, to get the much-needed cash. And with SMEs emerging on a daily basis, bill discounting and its advantages have become the need of the hour.

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Why did you feel it was the right time to promote this form of financing in India? What insights did you bring to this business when you first set it up? Since then, have you had to revise any of your assumptions?

I felt that there was no exact time to promote this form of financing in India as there has always been a need for this sort of a solution. Typically NBFC, banks and other financial institutions in India were the primary financial solution providers, but they brought along with them issues surrounding NPAs, liquidity crunch, etc. Banks ask for collaterals, which makes it such, a need arises to create a seamless working capital product for businesses that doubles up as a high-quality asset class for investors.

SMOOTHENING SUPPLY CHAIN CASH CRUNCH: (L-R) KredX Co-founders Manish Kumar and Anurag Jain are helping businesses gain swift access to collateral-free working capital

How has the response been since you launched KredX in 2015?

It’s been quite phenomenal actually. So far we have discounted over two lakh invoices and assisted over 3,000 businesses across India with their working capital requirements. The ticket sizes vary from anywhere between `50,000 to `20 crore. Being a completely tech-enabled platform gives us a lot of added advantages. Our investors and suppliers/vendors interact with us through our portal and vice versa, starting from documentation to money disbursal, ensuring zero-paperwork via the mode of digital contracts and digital signing, thereby making us a green company. Currently, we have 60 plus corporates live on our platform, and our product KredX Early helps us serve a global audience. Apart from this, on the investor side, we have a pan India presence of returning customers. Following the success of our flagship product KredX, we launched a new dynamic discounting product KredX Early in 2017.

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How about your investors and partners, how have they indicated their support?

Our investors and partners have been very supportive and have shown their trust in us. We have received a round of Series A funding for $7 million, which was led by Sequoia and Prime Venture Partners. This established their belief in us as a company that has the potential to bring a change to the Fintech world. On our end, we will work relentlessly and constantly to prove their trust in us and thrive to be the best in the industry.

How is the private sector bill discounting industry shaping up in India? Is there a regulatory framework in place to safeguard the interest of stakeholders?

You might not be aware, but the gap between the funding requirement in India and the availability is as wide as Rs 2.9 trillion! So obviously, a need arose to bridge the gap. Since traditional banking systems weren’t able to keep up with the pace of changing trends, alternative financing solutions such as invoice discounting came up to solve the working capital issues.
I think every company maintains a certain regulatory framework internally to safeguard the interest of its stakeholders. We at KredX maintain certain protocols and make sure every invoice on our platform goes through a rigorous screening process, to ensure maximum safety for anyone who is associated with our platforms. Also, our company is an ISO 27001 certified company. I think maintaining and building trust is one of the key factors for the KredX platform, and therefore it is vital for us to safeguard the interest of our stakeholders.

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PLAYING MATCHMAKER: KredX founder Manish Kumar has leveraged technology to match seekers of working capital and those who are ready to invest for the short term

How does the KredX mechanism work? Who can get bills discounted through the platform? What are the costs and limitations?

So the process is very simple. Businesses are supposed to upload their invoices on the platform. After a thorough screening process, the invoice is published. The investors then browse and choose from various verified deals. Once the investor has finalised the deal, the business gets working capital within 24 to 72 hours. The investors, on the other hand, get lucrative returns on funds that were sitting idle with them during a short timeframe of 30-90 days. These returns are much higher when compared to those offered by traditional banks.

Any business can upload their bills for discounting on our platform. However, there are few things that should be remembered – the invoices should have been accepted by their clients. The business should be supplying goods or services to large blue-chip companies. Apart from this, the business should be willing to share its financial information and other related documents with us. This gives us the advantage of creating that trust between businesses and investors and between vendors, investors, and KredX.

What could be some of the reasons for businesses to not be able to get their bills discounted through KredX? Can they improve upon their qualifications for the future?

There could be various reasons because of which a business failed to get their bills discounted through KredX. An invoice is verified after going through three stages. These are Pre-Sanction, Sanction, and Post-Sanction. A business might fail to provide all the necessary documents like KYC documents, CIBIL record of directors, ID proofs, bank statements, sales data, loan sanction, among others.

It is also possible for a business to accidentally skip the signing of the sanction letter. After the sanction letter is signed, there is another set of documents like board resolution, MOA, post-dated cheques, undertakings, among others.
The only important thing to remember is that all documents are submitted on time and are thoroughly checked. Businesses should be at least 10 months old. They should cater to at least two large-scale corporates and have a CIBIL score of 620 and above. They should have a minimum turnover of `25 lakh. These are the basic things to follow. For more details, the businesses can always contact us at our helpline number provided on the website

A number of SMEs and their channel partners in the building products sector supply to blue-chip customers, who could be star hotels and hospitals, developers, educational institutes, corporates, govt departments, etc. Usually, the supplies continue for mid to long-term, since realty and infra projects have long gestations. Would you say that the building products sector could be a potential market for KredX?

Yes, I do believe that the building products sector holds high potential in terms of business for KredX, and we would be open to working with businesses where the counterparty is a large corporation or conglomerate. India is a country with huge potential and with the growing pace in almost every industry, our radius in terms of growth is huge. We stand at a place from where we see growth in every direction and industry, and this provides us with a plethora of opportunities.

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Would KredX support the channel partners of blue-chip companies such as Asian Paints, Havells, Kajaria, etc in their working capital needs, as they buy their inventories?

We do channel financing but that comes with certain limitations. We do it only in tie-ups with corporations and not independently.

You say that bill discounting is an attractive investment avenue as well. How is that so, and how safe an avenue is it?

Yes, I do say and believe that bill discounting is an attractive investment avenue. Talking about KredX itself, we provide investors with an alternative form of investment which is short-term and comes at low risk. Apart from this, we give high returns when compared to others in the same sector. When it comes to safety, we aim at minimum risk in our procedures. By making sure that all the invoices go through a rigid screening process that requires them to send all their financial documents, CIBIL score, etc, we make it a priority to deliver safe returns on the investment.

There are four layers to our screening process. We start with borrowers who are evaluated based on their credit credentials, financial robustness, and stability. This is then followed by an assessment from a creditworthiness perspective as well as the confidence KredX has in their compliance, regulatory practices and integrity. Furthermore, we take into account factors like credit ratings, fundraising abilities, market news and current liquidity position to ascertain the same. KredX then makes sure that all payments for services to the borrower have been made on time by the enterprise. Finally, based on all of these we generate a KredX score, which is an amalgamation of various features quantified into a single value. We still advise our investors to make an informed decision before purchasing a deal on the KredX platform. The investor is required to go through all the reports thoroughly before investing. After all, the risk is being borne by them and they are the ultimate beneficiaries on the supply side.


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