Trade & Supply Chain

Accelerating supplier payments

Published: Nov 2017

Rajah Chaudhry

Founder & CEO


Tell us a bit about yourself and your background.

My background is in investment banking. I spent ten years working in this space in both Hong Kong and Australia, mainly with Deutsche Bank. Seven years ago, I left banking and founded ChinaScope, a financial data and analytics provider. This was my first foray into the world of fintech, before fintech was even included in the financial lexicon.

Do ex-bankers make good fintech entrepreneurs?

I think the answer is very much dependent on the individual. In my case, as an investment banker, I was trained to be a perfectionist. At the bank, we would never do anything without it being triple checked and you would never put anything out to a client without it being as good as perfect.

I quickly learnt that you cannot be a perfectionist working in fintech. The innovative nature of the sector means that you are always pushing the boundaries of what is possible, at speed and whilst working with imperfect information. The result is that some mistakes will be made, and failures will happen. Becoming comfortable with this fact and trying not to be a perfectionist was probably one of the biggest challenges I faced when switching from banking.

Where did the idea for Paycelerate come from?

The idea for Paycelerate was born out of the frustration I experienced when launching ChinaScope. As I am sure other small business owners will attest, when you start out there are very few financing options available.

Even once the business starts making progress and attracts institutional or venture capital, the banks are still not going to offer finance, unless you can provide proof of profitability – which is unlikely to happen in the early stages.

How vibrant is the fintech community in Hong Kong?

The scene is vibrant. There is a lot of hype and everyone is talking about fintech – you could probably go to a fintech event every night of the week. This community is playing a positive role in building an understanding of what fintech companies are trying to achieve.

My only concern is that despite all the talk, there are very few companies out there with an actual product. To some degree, this is just the nature of Hong Kong. I hope to see more people translating their ideas into products in the coming years so the momentum that currently exists around fintech in Hong Kong can continue to grow.

What about across the rest of Asia?

I think what is happening in China speaks volumes. It is a completely different ballgame there when you compare the market to Hong Kong, or any other country for that matter. One issue is that the market in China is so saturated that there will be a lot of companies that just cannot survive. When you couple that with the growing dominance of the big tech firms, it is going to get increasingly hard for smaller players to penetrate the market.

China does have an advantage, though, because of its massive consumer market. This is what the majority of fintech companies in China are catering for.

What can regulators do to help fintech thrive?

Regulators across Asia are reacting differently. In China, for example, one of the reasons why the fintech community is so vibrant is because the regulators are quite hands-off. That is, until companies start having a noticeable impact on the economy – we have seen a prime example of this around cryptocurrencies recently.

In Singapore, which is like Hong Kong in the sense that it has a relatively small consumer market, the regulators are being very proactive and supporting fintech. Lots of companies are receiving funding and numerous products are hitting the market.

Diagram 1: Accelerating supplier payments
Diagram 1: Accelerating supplier payments

In contrast, the regulators in Hong Kong are taking a more free-market based approach. There is nothing inherently wrong with this, but the fintech space would certainly be boosted with a little bit more support to ensure more companies can receive funding.

Broadly speaking, I think the regulators in Asia are doing a good job by facilitating innovation without creating risks to the economy. Ultimately it is a balancing act. Only time will tell what is the best approach.

Unlocking value in the supply chain

Around the world, SMEs are struggling for cash. This is largely due to their inability to access readily available and reasonably priced funding from traditional lending sources. “In Asia Pacific, this problem is especially acute with somewhere between 50% and 70% of SMEs claiming to be unfunded or underfunded,” says Rajah Chaudhry, Founder & CEO at Paycelerate.

On the other side of the equation, large corporates are increasingly stockpiling cash and searching for ways to use it. “This is proving to be a challenge as there are few options available to invest short-term cash,” explains Chaudhry. “The options decrease even further if the corporate is seeking a healthy yield from these investments.”

Paycelerate looks to solve both issues by offering a dynamic invoice discounting solution. “Invoice discounting – where suppliers offer discounts for accelerated payment of invoices – has existed for some time in Asia,” says Chaudhry. “Yet despite the benefits it can offer buyers and suppliers, invoice discounting has not gained the kind of traction it should have. This is largely down to the absence of a system to manage the process, making invoice discounting a highly manual, convoluted process that is impossible to roll out on any large scale.”

In contrast, Paycelerate’s solution is flexible in the sense that suppliers can select when they want to accelerate a payment. “This is a much more efficient process and gives SMEs the ability to more strategically manage their working capital on a week-by-week basis,” Chaudhry says.

Supply chain finance +

To do this, the solution links up with the corporate buyer’s ERP system either through an API or similar data transfer option. Once an invoice has been received and approved by the corporate buyer, invoice data will be sent to the Paycelerate platform and the supplier will be alerted that there is an opportunity to receive accelerated payment, subject to a discount being offered on the invoice. The supplier can then select what payment(s) they want to accelerate and receive payment almost instantly.

Also, unlike more traditional forms of supply chain finance, Paycelerate’s solution negates the need for suppliers to go through lengthy and complex KYC checks when onboarding. “As a result, suppliers can be on-boarded and begin using the solution in a matter of minutes using our online portal,” Chaudhry says.

Realising the benefits

So what are the benefits of using the solution? Chaudhry explains that suppliers ultimately get the chance to access a much cheaper form of funding than they would from a bank. “If a supplier offers the buyer a discount of 0.5% on a HK$100,000 invoice to receive payment 30 days early, that equates to an annual 6% cost of financing for the supplier,” he explains. For the buyer, the discount means that they improve their yield to 6% on an annual basis as well – a better return than most, if not all, other risk-free short-term investment options.

Despite the clear benefits the solution can offer, Chaudhry admits that it is not always an easy sell. “Corporates generally understand how the solution works and the benefits it offers,” he says. “The issue is that it requires a small change to an existing process. From my experience, many corporates can suffer from organisational inertia, which makes getting them to make these changes a challenge at times.”

Corporates may also need to make some changes in how they work with their suppliers to attain full value from the solution. “Although the solution works with all forms of invoicing, it works best when the buyer and supplier are using electronic invoicing,” notes Chaudhry. “This is because the quicker the invoice can be received and processed, the quicker the supplier can access the financing.”

Future ambitions

After building solid foundations in Hong Kong’s corporate community, the next step for Chaudhry is to launch in Singapore. “This is the short-term ambition,” he says. “Medium term we are looking to launch in Australia and Taiwan as both these markets have expressed an interest in this type of solution.”

Company timeline

  1. June 2016Paycelerate founded in Hong Kong
  2. October 2016Platform developed
  3. January 2017Testing completed
  4. March 2017Launch with Hong Kong clients
  5. August 2017Soft launch in Singapore
  6. March 2018Planned launch in Australia

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