Traditional industries face the challenge of delayed payments. The most painful thing for manufacturing industry is “payment delay”. As long as the payment from the customer (buyer) does not come in, the seller may even face the risk of bankruptcy.
Isle Finance from Taiwan is targeting the pain points of fund turnover and financing in traditional manufacturing industries and supply chains, creating an on-chain agreement that allows buyers to borrow from the fund pool and make advance payments to suppliers, giving both parties more flexibility in fund turnover.
Theoretically, there are three types of beneficiaries from Isle Finance’s services: buyers can have more abundant funds, sellers can receive payments on time, and the liquidity providers of funds can also obtain 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 only be made to the seller after the products are sold.
Take the footwear industry as an example. Suppose a supplier from Taiwan sells shoelaces to Nike. After providing the shoelaces to Nike, Nike needs to turn the shoelaces into complete shoes with other accessories, and then distribute them through different sales channels until the final sale is completed. After Nike sells the shoes and obtains the revenue, the payment will be made to the shoelace supplier.
Lin Bocheng, the CEO of Isle Finance, said, “This process may take weeks or even months. The seller usually hopes to receive the payment as soon as possible in order to accelerate business expansion. However, the buyer expects to extend the payment period to ensure that the funds can be paid at the most favorable time. Therefore, the time difference in payment has become a difficult problem faced by both buyers and sellers in the supply chain.”
The above is just a reasonable case. In a buyer-dominant market, unequal contracts may be signed, and the performance period may last for a whole year.
In addition, Yang Chunlan, the Chief Strategy Officer of Isle Finance, added that small and medium-sized sellers often need fund turnover due to buyer payment delays, and one way is to finance through banks. However, when banks handle these financing requests, they usually need to undergo strict due diligence procedures, including assessing the credit risk of the company, which not only takes time but also limits the financing capacity of many small and medium-sized suppliers.
How does Isle Finance change supply chain financing?
Isle Finance is a payment credit protocol on the PayFi track. As a buyer (in the example above, Nike), if you want to advance payment to the seller (shoelace manufacturer), you can borrow from the Isle Finance fund pool and repay it later. In this way, the buyer will directly receive the payment.
Lin Bocheng described Isle Finance as an “online credit card machine”. Once approved, the protocol will give the buyer an online credit payment limit. After the seller’s invoice is uploaded 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 from the buyer’s wallet to the seller’s wallet. The buyer must repay the “credit card fee” before the due date.
As for the liquidity providers of the fund pool, they can be individuals or institutions, and they earn returns from the interest paid by the buyer.
As a PayFi network, Isle Finance emphasizes achieving “instant transactions”, obtaining rapid fund flow, and breaking away from the traditional financial system to solve the financial problems of real assets with blockchain technology. 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
Guo Zhuanyi, the COO of Isle Finance, admitted that it is not easy to introduce Isle Finance or stable coins to traditional companies, as many companies still have many concerns and misunderstandings about cryptocurrencies, and their understanding of cryptocurrencies is still based on 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 fiat currencies and meet the funding needs of traditional companies. In addition, the team continues to promote market education to enable more companies to understand how to use blockchain technology to improve fund flow efficiency in the supply chain.
Isle Finance will officially launch its mainnet in the fourth quarter of this year. Guo Zhuanyi said that Isle Finance has already started cooperation discussions with multiple Taiwanese and international companies and plans to expand its service scope. “Because Isle Finance uses a blockchain payment network, it can provide cost-effective and convenient credit payment services for enterprises. It can be used without a bank account, only by connecting to the network, and it has the opportunity to cover global suppliers,” said Guo Zhuanyi.
Isle Finance’s service is well-intentioned and truly showcases the characteristics of blockchain technology. However, when it comes to the real world of commerce, there are too 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 businesses can experience the beauty of the blockchain world.