Early last year Rio Mints & Sweeteners was looking for a solution to a problem so many companies in today’s economic climate face – a long wait to receive payment for goods.
The mint manufacturer – which is owned by the Swiss holding company SweetLife – often had to wait for up to six months from the day it packed its product onto ships until the moment its international buyers made payment.
With its mints and sweets being manufactured in China, the shipping process alone could take up to three months. The company then had to wait for buyers – which included large supermarket chains – in both the US and the European Union to complete its quality inspections, approve invoices and then pay them within what were usually lengthy payment terms.
The company – based in Holland – ideally needed to receive payment earlier to maintain healthy levels of liquidity to reinvest in the business.
Yet there were few lenders willing to finance a company’s receivables – at a reasonable cost – especially while goods are still in transit.
“Time in transit is relatively long and inventory levels in our warehouse in Holland are high due to the large quantity of required SKUs. The company could not obtain any form of financing for their goods in transit and neither for the inventory kept in the warehouse,” says Pieter de Haan, CEO at SweetLife.
This is where tech start-up Arviem stepped in. The Swiss firm was test-running its new working capital solution in order to capitalize on its cargo monitoring services that could generate a pool of detailed and up-to-date data. It was this ability to create data that would be key in making Rio Mints’ assets financeable while still in transit.
The sweet manufacturer joined forces with Arviem to become one of the first companies to pilot the solution. The tech firm officially launched its offering to the wider market last month.
Arviem’s cargo tracking and monitoring system collects detailed real-time information on cargo in-transit, such as humidity, temperature and location of the cargo. This data can then be used to create a more accurate risk profile of transaction and the likelihood the goods will arrive at the right place in the right conditions.
“The working capital service here is just another part of the puzzle in the overall picture to optimising end-to-end supply chains,” says Stefan Reidy, CEO of Arviem, speaking to SCF Briefing.
“We know where the cargo is and the status of the cargo. We can finance the mints from the moment they are loaded. Banks and fintechs can finance goods when the cargo arrives, but no one is financing when goods are in transit as no one has visibility.
“We are making that connection between what we can monitor, the risk profile we have and also making these assets in transit financeable,” he said.
Aidan Shilling, director working capital solutions, at Arviem, adds: “We are trying to create financing from doors closing to doors opening”.
“By providing information, you can get the comfort. What we are seeing is that big banks are focusing on big organisations and small organisations are being squeezed for cash and this is a great way to extend their financing.”
The product is part of a wider industry push to find means of financing goods further up the supply chain before invoices are even approved by buyers.
Until advancements in sensors technology and the use of data analytics, financing goods in transit was extremely tricky. There was limited accurate up-to-date data available about whether the right cargo has been loaded on to the right ship, whether the quality is good enough and even whether the ship was going in the right direction.
“It didn’t happen in the past because there was no visibility. You had to rely on a shipping company or transportation company to tell you where the cargo was. We can now tell you where the cargo is – so financiers are becoming a lot more comfortable as they know there are independent eyes and ears. They know where the cargo is at any time,” says Shilling.
“We are independent of external stakeholders such as logistic companies. We can use our data to create value-added services. We can create risk models for insurance companies or as a consultancy tool to help companies optimise their supply chains,” he adds.
In the case of Rio Mints, once the monitoring solution was fixed to the company’s containers and the ship doors were closed, Arviem then bought the goods from Rio Mints. After a set period of time, the goods are sold to distribution partners in the destination market who then supply the retailers with the goods.
“The financing facility provided by Arviem, combined with their container tracking services, provided a major and instantaneous reduction of our company’s working capital requirements,” says de Haan.
“Not only were we now able to obtain financing for the duration of the voyage, we also managed to extend the financing period to include time in the warehouse.
“Additionally, thanks to the Arviem container monitoring service, we had real-time insight into the availability of SKUs in transit which greatly improved our ability to manage inventory levels, as well as being able to keep customers well informed about arrival times. All these benefits came at a low-cost and without much additional paperwork or effort,” he said.
Arviem is currently working with around 30 financial institutions with varying degrees of risk appetite who participate in the working capital solution on a case-by-case basis depending on the clients involved.
It is only a matter of time before more lenders – both banks and non-banks as well as insurance companies – become more comfortable with the risk of this type of financing, said Shilling.
“The banks will have more appetite for it – and it will attract new banks as well. Many of the big banks are consolidating and not taking on many new clients,” he says noting how much of the interest could come from smaller financial institutions.
The pilot with Rio Mints helped Arviem to work through the legal challenges of financing supply chains at this stage and Shilling explains how the company is looking to further develop and complete more off-balance sheet financing transactions.
“This would need approval from the auditors of the client we are serving. How do we make that happen that it is accepted as off-balance sheet financing? It needs some creative work and we think we have solutions for that – but it will differ from client to client and you have to talk to auditors again,” he said.
Arviem plans to make the process more automated in the future once they’ve established some off-balance sheet legal constructs.
“It is the idea we can take these constructs out of the drawer and do it again. This would be backed up with software, so we don’t have to do everything manually. This will grow over the next few years, but at this stage is was important to have pilot cases to prove that the concept we had in mind works,” said Reidy.
Asides from Rio Mints, Arviem worked with another pilot client last year – a trader working in Bolivia. In this case, the pilot programme demonstrated how the solution is useful when deals start to potentially go wrong.
Shilling explains how the trader was importing silver concentrate from Bolivia and had installed the monitoring systems on ships which were supposedly heading north towards Europe.
However, the shipping company inadvertently sent the first few boxes southwards rather than north – potentially delaying the arrival of the goods with the buyer. In the past, without access to real-time data, the blame for this delay would have been placed with the trader, Shilling says.
In this case, all parties were able to immediately log on to see real-time information showing that the cargo was temporarily going in the wrong direction. All the parties could then take steps to remedy the situation at a much earlier stage and the trader’s reputation remained intact, he explains.
“Everyone involved in the chain could go online and see where it was going, and no one had an issue. Whereas in the old days it would be ‘the trader has screwed up again’ – yet it wasn’t the trader’s fault. With the monitoring system, the deal was able to progress,” he said.
Arviem’s monitoring system could also be used to spot potential attempts at fraud or theft at a far earlier stage in the supply chain – again helping create a better risk profile of the transaction, Shilling explains.
He tells SCF Briefing how the same trader told them that before adopting Arviem’s solution, the company had faced a problem where its silver concentrate product had been taken and replaced by dirt – which at first glance can look like silver concentrate – which the trader then unknowingly shipped to Europe.
It was a difficult situation that could have been avoided – or at least the impact lessened – if a monitoring system had been in place, Shilling says.
“If he had the monitors on the containers he could have stopped as soon as the doors had been unexpectedly opened – and at that stage we could have sent in an inspector in or as soon as the cargo arrives in the port. In the past, you would find out too late and you then have client and reputational issues to deal with as well,” he said.
Such anecdotes are a reminder of the growing importance and value of detailed real-time data for managing and financing of complex supply chains. It is likely many other tech firms with access to their increasingly detailed data pools will look to add a financing layer to their business model as well.