Please describe your proposed solution.
Imagine being a small business in a developing country, where the financial landscape is challenging. Despite Micro, Small & Medium Enterprises (MSMEs) making up 99% of businesses, contributing significantly to employment and GDP, they receive less than 15% of the credit allocated to companies [1]. Traditional invoice factoring, a potential lifeline, is slow, inefficient, and costly, with extensive paperwork, high fees, and long payment cycles that stifle growth. It's also often inaccessible to startups and smaller enterprises without strong credit histories. Fraud is another concern, with activities like invoice duplication and falsification of documents increasing risks and costs. Lastly, the lack of transparency in pricing, terms, and conditions adds to the confusion and difficulty for MSMEs trying to manage their cash flow and financial obligations. It's a tough road that many businesses navigate daily [2].
Delana is a breath of fresh air in the invoice factoring industry, offering a decentralized platform built on the Cardano blockchain that directly addresses the challenges MSMEs face. It's a marketplace where MSMEs, customers, and investors meet, enabling companies to sell their invoices at a discount for immediate payment, thus boosting their working capital management. The platform simplifies the factoring process, reduces risks and enhances trust between parties. Delana’s ecosystem will have 3 main actors that will get different benefits from interacting with the platform:
- Benefits for MSMEs
- Increase your cash flow: Get your invoices financed quickly with low rates.
- Worldwide access to funds: No borders to get liquidity. Marketplace with global access around the world.
- Easy to use: Get funding almost real-time with their sales as collateral.
- Benefits for Investors
- Yield: Provide liquidity and get a high yield with low-risk in return
- Transparency: Transaction details are transparent and easily accessible to all parties involved.
- Minimize associated risks to payments and fraud
- Automation: Get your investment paid on time by automated transactions.
- Benefits for Companies Buying
- Reduce operational costs and implicit control on payments to providers/suppliers.
- Rewards in the form of token/discount for on-time payments.
- Payment automation.
Our Platform
In the steps below, the numbers are shown as an example:
- Purchase: Buyer orders $5000 worth goods from the seller.
- Invoice: Seller delivers goods, issues $5000 invoice due in 90 days.
- Tokenization: Seller uploads the invoice to Delana, discounts it to $4900 for immediate payment.
- Approval: Buyer confirms the invoice on Delana.
- Investment: Investors on Delana collectively fund the $4900.
- Payment: Seller receives $4900 instantly, improving their cash flow.
- Invoice Due: After 90 days, buyer pays the full $5000 to Delana.
- Return: Investors receive their initial investment plus interest (~$5000 = $4900 + ~8% APY)
Components
Delana's platform is built on several core components:
- <u>Decentralized Ledger:</u> The foundation of the Delana platform, the decentralized ledger securely stores token ownership and transaction data, ensuring the immutability and transparency of all records.
- <u>Tokenized Invoices:</u> Delana utilizes tokenization to represent each invoice as a unique digital asset on the platform. These tokenized invoices contain essential information, such as the invoice amount, due date, seller and buyer details. Tokenization simplifies the trading of invoices, enabling seamless transactions and reducing the potential for disputes and frauds.
- <u>Smart Contracts:</u> The platform employs smart contracts to automate various aspects of the invoice factoring process, such as payments, collateral management, and dispute resolution.
- <u>Historical Record:</u> Delana maintains a comprehensive historical record that tracks the performance of every participant on the platform, including their transaction history, repayment rates, and risk profiles. This information is crucial for assessing the creditworthiness of borrowers and payers, as well as for determining appropriate discount rates for invoices.
- <u>Delana Protocol:</u> The Delana Protocol serves as the backbone of the platform, connecting suppliers of investment assets with demands of liquidity. By matching investors with suitable investment opportunities and facilitating the efficient flow of capital, the protocol ensures that MSMEs can access the funds they need to sustain and grow their businesses.
Smart Contract Development
For the development of our smart contracts, the majority of our focus will be on using Marlowe, using toolsets designed specifically for financial contracts on Cardano. Marlowe offers us a high-level, intuitive way of constructing contracts that ensure transparency, security, and efficiency, making it a perfect fit for our invoice financing platform.
However, while Marlowe is great for most of our needs, there may be specific features and exceptions in our design that necessitate the use of a more flexible and general-purpose language. For these, we'll be using Plutus. Our team has extensive experience and expertise with Plutus from working on IOG projects, so we're well equipped to handle any complexities that arise.
Marketplace
The Delana marketplace serves as a central hub for investors to access a wide range of tokenized invoice investment opportunities. It offers a user-friendly interface and provides detailed information about each opportunity, such as the Company Buyer's profile, payment record, feedback from other investors, transaction volume, suggested interest rate and invoice details. This wealth of information empowers investors to make well-informed decisions and maximize their returns while ensuring secure, traceable, and tamper-proof transactions through blockchain technology.
Catering to both institutional and individual investors, the Delana marketplace democratizes access to investment opportunities, fostering financial inclusion and allowing more people to benefit from the growing invoice factoring market. This feature contributes to the overall economic growth of the region and enhances investor confidence in the Delana ecosystem.
Payments
The platform will utilize a stablecoin available in Cardano (TBD; e.g. DJED or iUSD) for loans to MSMEs, return payments for investors, and fees. Payers will also use this stablecoin for their invoice payments. This approach ensures stability and mitigates the risks associated with ADA price volatility.
--While out of the scope of this proposal, in the long term Delana has plans to explore the introduction of its own utility token as a means of incentivizing positive behavior within the ecosystem's operations.–
Use Case Examples
- A company categorized as a MSME in the manufacturing sector has a 60-day payment term with a large buyer. The MSME buyer has a solid payment history, but the MSME needs funds immediately to cover operational costs. The MSME tokenizes its invoice on Delana, enabling investors to purchase the invoice at a discounted rate. The investor gains an attractive return, while the MSME receives immediate funding.
- A small retailer in Latin America has a stable relationship with its supplier but struggles to manage cash flow due to delayed payments from customers. The retailer tokenizes its accounts receivable on Delana, allowing the supplier to factor these invoices and receive immediate payment. The supplier gains liquidity, while the retailer secures essential goods for its operations.
- An investor is seeking alternative investment opportunities with attractive returns and low risk. Through Delana's platform, the investor can access a diverse pool of tokenized accounts receivable with varying risk profiles and returns. The investor can diversify their portfolio and invest in multiple invoices, spreading the risk and maximizing returns.
The current scope of the PoC is mainly focused in the backend which includes:
- Log in of the different roles (buyer, seller and investor) using their public address.
- Seller uses invoices imported previously manually by the Admin of the PoC.
- Each invoice has its own smart contract with, for the moment, just basic info as seller, buyer and amount.
- Buyer can confirm that invoice. Therefore the state of the invoice changes from "Not confirmed" to "Confirmed".
- Investor can see the invoices available where capital can be added.
Access our public PoC through our website: https://www.delana.io/