Paycelerate to help small suppliers get paid ahead of time
Small suppliers often face the problematic issue of long payment terms, where invoices can go unpaid for months at a time, leading to potential cash flow issues. But Hong Kong start-up Paycelerate wants to help change that.
The Hong Kong-based company operates what it calls a “dynamic discounting” platform, whereby suppliers can offer discounts on their invoices in return for the buyer making payment ahead of the payment terms.
“Many small companies are always struggling to get financing from banks, but banks find it hard to make money [by lending to them],” said Rajah Chaudhry, founder and chief executive of Paycelerate. “The fundamental reason why suppliers struggle to grow their business and need to get financing is because they’re not paid on time.”
Paycelerate operates as a marketplace for a company and its suppliers, and matches both parties based on a demand and supply model. While suppliers are able to get early payments in return for discounts, buyers are also incentivised to pay early as discounts mean better margins.
“A lot of big corporations are sitting on a lot of [short-term] cash that needs to be liquid and risk-free, and most of this cash sits in short-term deposit accounts or money market funds ... which typically generate low yields because they are [low-risk],” said Chaudhry, an ex-banker who started Paycelerate in 2016.
But by making early payments to suppliers in return for discounts, the increased yield comes in the form of a discount and improved business margins, making it a win-win situation for both supplier and buyer, he added.
When companies hook up their accounting systems with Paycelerate and process supplier invoices, suppliers are given a choice to offer a discount in return for earlier payment if they so wish.
For example, if a supplier offers the buyer a 0.5 per cent discount on a HK$100,000 invoice to receive payment 30 days early, that equates to an annual 6 per cent cost of financing for the supplier, compared to high interest rates offered by banks, which can range from 10 to 15 per cent or more.
Similarly, the corporation receiving the discount also improves their yield by 6 per cent on an annual basis thanks to the discount – a better return than putting the cash in a low-yield fund.
Since companies are limited in the number of suppliers they can pay early, Chaudhry said that Paycelerate helps to select and process which suppliers to pay through a “silent auction” basis.
Buyers can set a limit of how much cash they have for early payments and the minimum discount they would require for such a transaction. The company’s suppliers can then bid by offering up discounts, with Paycelerate’s algorithms taking a weighted average across the bids.