India’s top Spice Exporter Enables Instant Working Capital for Its Vendors with TReDS

Client Overview

The client is a successfully run spice manufacturing and exporting company with its roots embedded in India. The company has six manufacturing facilities in Kerala, Tamil Nadu, Andhra Pradesh and Uttar Pradesh. It has now established a strong presence in 13 states across India with a huge network of local vendors. It also derives revenues from overseas markets of Middle East, the US, Australia and the UK through exports.  It has established itself as a household name when it comes to spices.

The Volatile Situation

In line with its nature of business our client has built a large network of dealers and vendors since their incorporation. The vendors are predominantly MSME (farmers and aggregators) in nature which has been built and nurtured over time. The client recognized that this network constituted not just a valuable asset, but also a key competitive advantage. One of the key challenges in this industry is volatility in raw material prices. This apart most of the vendors are dependent on their working capital borrowing to purchase raw material. Given the profile of these vendors their borrowing rates are significantly higher.

The Challenge

The client did not want to execute a conventional vendor finance program which would reach only too few top vendors as it would not cater to bulk of their vendors. They wanted a program which would handle most of their vendors many of them who happen to be MSME. As a part of our client’s contract with its SME vendor network, the company makes the payments against invoices within 45 days of order delivery. To take competitive edge on raw material prices and to ensure prompt supply, vendors have to purchase raw material in advance to cater to the needs of the Buyer, which means requirement of more liquidity. Vendors would also often take help of traditional factoring for invoice discounting of its invoices, but this would involve a lot of paperwork and the payment takes approximately 7-10 days to reach the MSME supplier. The other alternative was bilateral WC borrowing but this would come at a higher rate of interest.

The need became urgent at the start of 2020, especially for the vendors, when the covid-19 crisis further rattled supply chains amid country lockdown and movement restrictions in the region, prompting vendors to ask early payment against their invoices from the buyer. As most of our clients MSMEs belongs to Tier 3 and Tier 4 cities where they don’t have access to formal source of finance, generally MSMEs source loan from Banks/NBFCs at very high interest rate. 

Our client understands the value of competitive working capital for its suppliers to keep the production up and running, but also did not want to overburden their internal team with additional administrative work which would be needed  for every conventional factoring/ vendor finance transaction as well. The client was ready to implement an innovative forward-looking solution to provide working capital at scale, without manual intervention.

To read the complete case study and know how TReDS benefitted the Spice Manufacturing Exporting Company, Click Here