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IncomLend seeks scale by attacking supply-chain finance

IncomLend, a startup online marketplace for loans to small companies in Asia, is now looking to scale via large corporations and banks.



Morgan Terigi, IncomLend

IncomLend, a startup online marketplace for loans to small companies in Asia, is now looking to partner with large corporations and banks in order to achieve greater scale.

Morgan Terigi, co-founder, says the Singapore-domiciled company launched last year in order to help small- and medium-sized enterprises (SMEs) obtain better financing from a diverse coterie of investors.

Like with a number of other such marketplaces in Hong Kong, such as Qupital and Velotrade, as well as Singapore players such as Capital Match, the business has emerged to help small companies with cash-flow problems, as banks retreat from catering to such businesses.

Like these other players, IncomLend is focusing on invoice financing, as well as establishing supply-chain funding partnerships with multinational corporations that could refer their Asia-based suppliers to IncomLend’s platform.

It has raised $1.5 million in capital and is now looking to forge its first partnership with a big multinational. The platform went live in September 2016.

IncomLend is also looking to work with banks on a cross-referral basis, in which it could take on some business that banks don’t want to service any longer.

“Worldwide, 55% of SMEs lack access to financing,” Terigi said. “Every year there is an estimated $2 trillion of cash trapped in differed payment receivables.” At the same time, many investors are keen to find instruments that can provide an attractive risk-adjusted return.

Faster cash to SMEs
Terigi illustrates the case of a supplier in Hong Kong, for example, selling services or goods on an open-account basis to a giant company in the U.S. To obtain financing, the Hong Kong SME would typically ask for a credit facility, but banks would demand collateral that a small company may not possess: its U.S. buyer has pledged to pay it, but only after 60 or 90 days, which may be too long to satisfy a bank’s credit-risk rules.

Under IncomLend’s arrangement, however, the U.S. conglomerate allows IncomLend to approve its suppliers using the conglomerate’s credit rating. Suppliers that choose to register on IncomLend’s platform can sell their invoices to IncomLend for up to 90% of the outstanding amount, and get cash up front; IncomLend then sells equitable interest of these invoices to the funders on the platform.

Upon maturity of the invoice, the conglomerate pays in full to IncomLend, which distributes the proceeds to investors (or ‘purchasers’, in IncomLend’s terminology, which include family offices looking for better returns on liquid assets), minus an administrative fee. Depending on the quality of the conglomerate and its relationship with suppliers, invoices can return 0.5% to 1.2% per month, or 6% to 14.4% annualized.

“We don’t ask the supplier for collateral, and we’re not giving them a loan,” Terigi said. “We are buying receivables off the supplier, taking these off its balance sheet.”

Pitching to MNCs
By working with multinational anchor customers, IncomLend can operate worldwide, not just for Singaporean or Hong Kong companies, buying receivables and selling them to a marketplace of purchasers. Moreover, its technology can arrange multiple purchases for a given invoice, all without the red tape involved in bank financing. “We’re enabling money to circulate faster, legally,” Terigi told DigFin.

The platform works with a Hong Kong-based trustee, Rosemont, to handle KYC and other checks on customers, and to ensure incoming funds match a registered purchaser’s details, and that payouts are justified by invoice or shipping documents. This is a manual process, as opposed to the IncomLend platform, which keeps track of registered user accounts and transactions. (The system works off, the platform built for SalesForce, using Amazon Web Services’s cloud.)

“Alternative finance is new, but we expect to grow 150% per annum for the next 10 years,” Terigi said.

Big companies are used to trading invoices, so a multinational won’t mind paying IncomLend instead of the supplier. In theory, conglomerates should welcome a service that represents multiple suppliers, because it can net payments.

But Terigi says anchor conglomerates require a lot of pitching. “The supply-chain approach takes time,” he said. The process begins with identifying big companies with hundreds or thousands of suppliers in Asia, and assessing their credit quality. If the multinationals agree to refer their suppliers, that can represent thousand of potential customers on IncomLend’s platform, but then it’s still up to the suppliers to agree to go through a compliance process and to sell their invoices to IncomLend.

The challenge is getting such a blessing from multinationals that don’t directly benefit from the relationship. It’s not the multinational receiving financing: it’s their supply chain. Big companies are sometimes unaware of the difficulties they cause small suppliers when they tighten payment conditions or squeeze them on pricing. Terigi argues that a service like IncomLend can ensure suppliers remain healthy and can provide better service instead of laying off people and cutting their quality. “Most of all, it requires a change in mindset,” he said.

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