Traditional industries face the challenge of payment delays. The most painful thing for the manufacturing industry is “payment delay”. As long as the customer’s payment (buyer) does not come in, the seller may even face the risk of bankruptcy.
Isle Finance from Taiwan has created an on-chain agreement for the pain points of capital turnover and financing in traditional manufacturing industries and supply chains. It allows buyers to borrow from the capital pool and make advance payments to suppliers, giving both parties more flexibility in capital turnover.
In theory, there are three types of beneficiaries who benefit from Isle Finance’s services: buyers have more abundant funds, sellers can receive payments on time, and the “liquidity providers” who provide funds can also earn interest income.
What difficulties do suppliers and buyers actually encounter?
In the operation of traditional manufacturing, contract manufacturing, or factories, after the seller provides products or services to the buyer, the buyer still needs to process and produce them. The payment will be made to the seller after the products are sold.
Taking the footwear industry as an example, suppose a supplier in Taiwan sells shoelaces to Nike. After providing the shoelaces to Nike, Nike needs to turn the shoelaces into complete shoes with other accessories and send them to different sales channels. After the shoes are sold, Nike will pay the shoelace seller.
Isle Finance CEO Lin Bocheng said, “This process may take weeks or even months. Sellers usually hope to receive payments as soon as possible in order to accelerate business expansion. However, buyers expect to extend the payment period to ensure that funds can be paid at the most favorable time. Therefore, the time difference in payment becomes a difficult problem faced by both buyers and sellers in the supply chain.”
The above is just a more reasonable case. In a buyer-dominated market, unequal contracts may be signed, and the performance period may last for a whole year.
In addition, Yang Chunlan, Chief Strategy Officer of Isle Finance, added that small and medium-sized sellers often need capital turnover due to buyer payment delays, and one way is to finance through banks. However, banks usually need to undergo strict due diligence procedures when processing these financing requests, including evaluating the credit risk of the company, which not only takes time but also limits the financing capabilities of many small and medium-sized suppliers.
How does Isle Finance change supply chain financing?
Isle Finance is a payment credit agreement on the PayFi track. As a buyer (in the above example, Nike), if you want to pay the seller (shoelace manufacturer) in advance, you can borrow from the Isle Finance capital pool and repay it later. In this way, the buyer will directly receive the payment.
Lin Bocheng described Isle Finance as an “on-chain credit card machine”. Once approved, this agreement will give the buyer an on-chain credit payment limit. After the seller uploads the invoice to the chain, the buyer can sign on the chain with a private key (similar to the process of swiping a credit card), and Isle Finance will pay stable coins to the seller’s wallet on behalf of the buyer. The buyer must repay the “card fee” before the due date.
As for the liquidity providers in the capital pool, they can be individuals or institutions, and they earn returns from the interest paid by the buyer.
Isle Finance, as a PayFi network, emphasizes achieving “real-time transactions” to obtain rapid fund flow and break away from the traditional financial system, using blockchain technology to solve financial problems of real assets. Yang Chunlan explained that for cross-border payments and corporate loans, PayFi not only accelerates the payment process but also reduces transaction costs.
Overcoming market education and compliance challenges
Isle Finance’s Chief Operating Officer, Guo Zhuanyi, admits that it is not easy to introduce Isle Finance or stable coins to traditional enterprises. After all, many companies still have many doubts and misunderstandings about cryptocurrencies, and their understanding of cryptocurrencies still remains in the negative reports in the news.
To overcome these challenges, Isle Finance is actively cooperating with compliant cryptocurrency exchanges to help companies convert stable coins into legal tender to meet the funding needs of traditional enterprises. In addition, the team continues to promote market education, allowing more companies to understand how to use blockchain technology to improve the efficiency of fund flow in the supply chain.
Isle Finance will officially launch its main network in the fourth quarter of this year. Guo Zhuanyi said that Isle Finance has already initiated cooperation and negotiations with several Taiwanese and international companies and plans to expand its service scope. “Because Isle Finance adopts a blockchain payment network, it can provide cost-effective and convenient credit payment services for enterprises. With the feature of only needing internet connection and not requiring a bank account, it also has the opportunity to cover global suppliers.” Guo Zhuanyi said.
Isle Finance’s service has a good intention and truly utilizes the characteristics of blockchain technology. However, when it comes to real-world business environments, there are many problems that technology alone may not be able to solve. It remains to be seen how many people Isle Finance can attract and how many manufacturers can experience the beauty of the blockchain world.