While the government has launched many schemes and initiatives to help Indian micro, small, and medium enterprises (MSMEs) achieve their full export potential, one of the major challenges plaguing MSME exporters – who account for about half of India’s total exports – is availability of and access to export credit. In addition, MSME exporters also face other related challenges such as cost of compliance, export data analytics, additional collateral requirements, and documentation challenges, among several others.
To be clear, access to sufficient and timely credit remains critical in enabling exporters to not just maintain business momentum but also capitalize on new growth opportunities. It’s something
Tamil Nadu-based spices exporter Nadar Spices experienced first-hand when the fifth-generation spices exporter was able to significantly grow the number of shipments and see a three-fold increase in business volume, thanks to better and faster access to credit after leveraging the collateral-free financing solutions provided by cross digital trade finance platform,
Like many other exporters, Nadar Spices had earlier faced challenges in availing adequate export financing, which, in turn, had hurt the company’s ability to capitalize on market opportunities and limited its buying capacity and sales growth during crucial periods, such as in 2018 when the prices of cardamom had surged to record highs.
Challenges of credit access, long sales cycle
Limited working capital, inability to pledge more collateral, and time consuming processes for availing financing from banks, all hurt the company’s ability to cash in on the jump in the international market price of cardamom to a maximum price of $31.96 per kg and an average price of $17.45 per kg in 2018.
“Moreover, to complete one sales cycle from purchasing the goods to shipping them and booking the next order would take about 50-60 days. So, we had to wait for cash. Imagine waiting for a hundred thousand dollars from your buyer and then making purchases upon receipts to prepare for the next order. It’s just not scalable to grow in such scenarios. The nature of export businesses is that it is essential to have a quick cash turnaround for a business to grow,” said Prem Divakar Venkatesh, Managing Partner of Nadar Spices.
Drip Capital’s cross-border trade finance solutions
That’s where partnering with digital trade finance platform Drip Capital – which provides collateral-free working capital solutions for MSMEs such as export factoring – has helped Nadar Spices to not only solve the challenges it faced related to limited access to credit, long sales cycle, and funds saturation, but also tap new markets, expand its customer base, and grow its purchase volumes.
Export factoring is one of the fastest ways for exporters to secure additional working capital. For Nadar Spices – which had earlier not worked with any third-party entity other than its bank for the company’s working capital needs – there were initial concerns about any risks associated with factoring and in sharing business details as part of the process.
But soon after gaining confidence and trust in the Drip platform with its first order, the company began raising the number of shipments and onboarding more buyers on the platform as the whole process is well-documented, duly vetted, and signed by all parties involved. In fact, all orders for its Indian green cardamom and Indian green coffee from their largest client in the Middle East are routed through Drip Capital.
In addition, the Drip platform helps exporters like Nadar Spices with other solutions such as export data analytics and seamless buyer onboarding.
“The best part about Drip is not just its platform but a combination of its technology and people who support you at every step of your journey. They complement each other. From platform experience and funds disbursal to meeting compliances, deadlines, audits, etc., our relationship manager is always a call away if we need any help. It is very much process-oriented,” Venkatesh said.
“All it takes to access a hundred thousand dollars’ worth of funds from Drip is to upload the right documents on a portal and give an online confirmation from our client’s side. Whereas in banks, sometimes, the redtape would make this process run into a few months,” he added.
The Drip Capital impact
Indeed, Drip Capital’s cross-border trade financing solutions has helped Nadar Spices ensure faster closure of pre-shipment credit, resulting in more savings as this is done well ahead of the due date, without the need for seeking extensions with added interest or missing deadlines.
With the improved access to capital owing to its partnership with Drip Capital in the past one year, Nadar Spices has seen significant positive impact on its business growth and has been able to:
- Shorten its sales cycle from 60 days to 15 days
- Boost average invoice value by 36 percent
- Enjoy stress-free buyer relations, resulting in improved synergies with buyers as Drip ensures the payments from customers are done on time, and
- Tap new markets in the Middle East, with high demand for the Indian green Cardamom
“In the last financial year of working with Drip, our business volume has doubled. The number of shipments to our top customer has gone up significantly, we are shipping more containers than ever and are able to fulfill more orders with a faster sales cycle. Basically, since the client has seen that we can ship orders faster, they are ready to place more orders with us. With access to these funds, we can handle at least 2X more purchase volume in a cycle,” Venkatesh said.
Like Nadar Spices, other exporters have leveraged Drip Capital’s export factoring services to access funds faster to help them grow their businesses. As part of this solution, Drip Capital provides upto 80 percent of the exporter’s export invoice value upfront on the day of the shipment, while the remaining 20 percent, minus the factoring charges, is paid once the buyer makes full payment to Drip Capital when the credit period is over.
This not only improves the exporter’s cash flow but also eliminates the hassle of payment collection. Exporters can also leverage the ready funds at any stage of the business lifecycle to pay for inventory, raw materials, employees, or any other short-term needs.
“Factoring is one of the key growth drivers exporters can use to inject additional working capital into their business. But there is a general perception in the export community that factoring is too good to be true, it’s easy money, and there might be some catch in it. So, my advice to them is to get started with one shipment. Consider it as any other loan from a bank, where you just pay the cost of debt associated with it. The results will speak for themselves,” signed off Nadar Spices’ Managing Partner Prem Divakar Venkatesh.