COVID-19 and Its Unsung Domino Effect to SMEs

by Maureen Ledesma

We have been listening to news and social media sentiments about the problems this new coronavirus has brought our lives. The supply chain has definitely not been spared. Although the headlines we may see are those of publicly listed companies in a stock market bloodbath and laying off employees etc, the domino effect to SMEs have been unsung and the effects are quite alarming and we may only be in the early stages. 

In our info graphic below, we take a closer look at the Airlines industry whose stocks tumbled the worst as the corona virus spreads. China Airlines posted record breaking losses of USD3B incurred for a single month in February 2020. Locally, our Philippine Airlines (PSE:PAL) stocks dropped to P5.00 per share, its lowest since 2006. United Airlines warns of worker layoffs without government bailout.   

How about the supply chain? What do we hear about them? Is ABC Plane Food Inc, or XYZ Airplane Fuel Inc still receiving purchase orders from China Airlines, Philippine airlines, United Airlines, etc given that a big number of flights and routes have been cancelled?

SMEs not only see less purchase orders from their biggest clients. 

– Worse, they are eventually made ‘creditors of last resort’. What do we mean by that? It is when large customers (like the airlines for example) become momentarily insolvent and ASK FOR DELAYED PAYMENTS. As an SME with zero negotiating power against these large clients, there’s nothing they can do. Unlike the airlines, SMEs don’t get bailed out by governments. And often, SMEs cannot dictate to get paid right away even when their customers are bailed out of insolvency. 

What other supply chains and industries do you think are hit badly by the new corona virus and the resulting government lock downs? Keen to hear your thoughts. 

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US-China Trade War: Why PH Has Just as Much to Gain and Lose

An Asian Development Bank statistician believes that the trade war between China and the U.S. will be a boon for manufacturing companies in the Philippines.

by Randolf Santos

Manufacturing companies in the Philippines may gain more business because of the current trade war between China and the U.S., according to an Asian Development Bank (ADB) statistician.

Beijing and Washington may have held talks as of December 2019 to find common ground on the conflict, despite billions of tariffs already imposed on certain goods from both countries. The U.S. so far implemented US$550 billion of tariffs on Chinese goods, while China’s tariffs covered US$185 billion of U.S. imports.

How PH Manufacturers Will Benefit

ADB statistician Mahinthan Joseph Mariasingham predicted a higher manufacturing activity in the Philippines by up to 0.7%. Agriculture, automobile and technology trade comprise some of the hardest-hit sectors by the trade war.  Electronics manufacturers might acquire new business from companies in the Asia-Pacific region, as they don’t want to get caught in the middle of the trade war. Japanese companies like Kyocera, Nintendo and Sharp have decided to exit China and move some of their manufacturing operations into Vietnam.

The Trade War’s Beginning

The trade war between China and the U.S. seemingly began in July 2018 when the first round of tariffs affected 818 Chinese goods. U.S. President Donald Trump ordered a 25% tariff on US$34 billion of products at that time. Chinese President Xi Jinping responded with their own tariffs starting with an estimated US$50 billion of U.S. goods in the same year.

China and US Interests

Trump has been vocal about his plans of imposing tariffs since he was still running for the White House. According to him, the U.S. has been at a disadvantage in international trade stemming from China’s unfair trade practices. China has claimed that Washington only wants to gain the upper hand by intruding on the Asian country’s economic and industrial sovereignty.

The two superpowers have deeply intertwined economies with the exchange of goods from consumer goods and electronics to construction materials. In 2018, the U.S. imported approximately US$539.5 billion of Chinese goods. U.S. exports to China only reached US$120.34 billion in the same year. The U.S. may have more to lose from the dispute, but experts believe that there are no clear winners from the ongoing trade war.

Why Everyone Loses

The tariffs can affect demand for different products made in China. The components for manufacturing those products are imported from other countries. If enterprises and consumers buy fewer products to avoid paying a higher price, then the weaker demand will create a ripple effect in international markets. Suppliers and traders need to be more agile and clever in navigating these changes.


Manufacturing companies in the Philippines shouldn’t be too happy about the trade war, even if it seems that some multinational companies want to shift their production from China or the U.S. into the country. The long-term effects and implications of this trade war are clear: manufacturers, traders, and other suppliers in the industry need to be insured against the impact of the ongoing trade war. Contact us today to find out how you can protect your company’s business.


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As E-commerce Disrupts PH Retail Industry, Suppliers Should Prepare for the Inevitable

Suppliers of traditional retailers in the Philippines should rethink their fallback strategies against client bankruptcies, amid the constantly evolving global e-commerce market.

by Randolf Santos

Online shopping continues to disrupt the brick-and-mortar retail business worldwide, and it already has found its way into Philippine shores.

The e-commerce market in the country will generate more than US$1.4 billion in revenue by 2023 from US$743 million in 2017, based on Statista’s forecast for the industry. The report showed that revenue growth will streak upward in the next four years, hence slowly threatening the stability of business for traditional retailers.

What Contributes to Online Retail’s Growth?

There’s no doubt that Filipinos still love to shop at malls despite the advent of e-commerce websites such as Lazada, Shopee and Zalora. However, the convenience of buying consumer goods without ever having to leave home seems to be the main selling point of online retail. On a technical aspect, the so-called Industry 4.0 will propel growth for the country’s e-commerce market.

The fourth industrial revolution refers to disruptive trends and technologies that also include the Internet of Things and cybersecurity. The Association of Southeast Asian Nations (ASEAN) has begun to review Industry 4.0’s potential impact on the economies of ASEAN countries. For instance, the Regional Comprehensive Economic Partnership identifies e-commerce as an integral part of preparations for the next industrial revolution.

E-commerce Brought Down Retail Titans

Forever 21 Inc and Toys ‘R’ Us comprise some of the big-name global brands that filed for bankruptcies since 2017. Consumer preferences that swung in favor of online retail predominantly caused the companies’ downfall. The famous toy retailer nearly shut down all U.S. stores, while the fashion brand plans to close almost 180 stores in the country. What does this imply for Filipino retailers?

Mixed-use real estate projects that include shopping malls may still be plenty, but will foot traffic remain sustainable over the long term? In the case of Forever 21, the company’s operations in the Philippines will continue because of its business relations with SM Retail Inc. Other traditional retailers don’t have such luxury of partnering with a retail giant. If an established brand succumbs to the competition from e-commerce, then the likelihood of going bankrupt increases for small- or medium-size retailers.

Popular Market Segments for Online Retail

Consumer electronics and media will account for the biggest share of revenue in the e-commerce industry at almost US$258 million in 2019, according to Statista’s analysis. Revenue from fashion sales will amount to nearly US$227 million in the same year. These two segments will be the top two market niches for online retail through 2023, when both submarkets will contribute more than US$650 million in e-commerce revenue.

Suppliers for traditional retailers of electronics and fashion items may have noticed weaker business this year. Trade credit insurance prevents you from second-guessing the outcome of retail trends, even when your company continues to enjoy a steady flow of orders. What would you do if your biggest client fails to pay on time?


It’s never too early to consider how your business can cope with a growing online retail market in the Philippines. Insurance has now become more necessary than ever for suppliers to protect their businesses from the most at-risk customers. VESL connects you with lenders and reputable insurers who can protect and identify the vulnerability of your end-buyers and clients. Register now for free and discover how our pay-per-invoice deals have helped different companies to recover up to 90% of business losses.


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What Every Business Owner Must Know About SBC’s P3 Program

Here are five key takeaways about the SBC’s P3 program that should encourage micro, small and medium enterprises to be flexible when planning to raise capital through debt financing.

by Randolf Santos

Micro, small and medium enterprises (MSME) in the Philippines often struggle to raise capital through debt financing instruments. How many times did banks reject your loan application?

While some entrepreneurs want to borrow money from banks because of the low interest, several roadblocks await them once they submit a loan application. The difficulty of gaining approval for a bank-financed loan forces many business owners to choose the infamous “5-6 lending” scheme. The Small Business Corporation (SBC) has recognized this trend, which led them to launch the Pondo sa Pagbabago at Pag-asenso (P3) program in 2017. However, MSMEs should know that the initiative may not be for every business owner.

The Program Has Certain Restrictions

The national government formed SBC to support the growth of MSMEs through debt allocation. However, you won’t be eligible for financing assistance if your company’s asset size exceeds Php3 million. New MSME owners should also engage in business for at least one year before planning to borrow money.

Logistics serves as another impediment for some MSME owners. SBC’s Gabriel Ebanen advised that the businesses of loan applicants should be located within an hour of public transportation from an SBC office. This becomes particularly troublesome for MSME owners in regional areas.

You May Need Additional Sources of Debt Financing

MSMEs can borrow between Php5,000 and Php200,000 without collateral based on their size and financial capacity for repayments. Companies with at least one employee can borrow up to Php200,000. In other words, the P3 program won’t be the answer to your big-ticket acquisition or expansion plans.

If you prefer an alternative to bank financing, then VESL can help you with finding the right creditors from its network of lenders. Businesses can borrow up as high as Php30,000,000, depending on your loan history and your matched lender’s underwriting. Our platform has provided clients with access to finance and insurance products that used to be exclusive to large companies.

You Can Get the Same Interest Rate From Other Sources

SBC imposes an interest rate not higher than 2.5% every month for P3 loans. The monthly cap, which includes service fees, is the effective interest rate based on the principal amount’s diminishing balance. By contrast, 5-6 lenders charge at least 20% per month! The actual interest can be even higher because of the frequency of payment collection either on a daily or weekly schedule.

If you apply for a collateralized MSME loan with banks, the interest rates can range from 6.5% to 8% depending on your chosen tenor. Alternatively, when you sign up with VESL, the rates from matching lenders can be as low as SBC’s monthly cap. Registration is also free!

New Debt Means More Risk

Debt financing can ensure that your business passes through the gestation stage (usually three to five years), but it also means a higher risk for your financial profile. Business owners should start reviewing their clients and end-buyers’ probability of default to protect their bad debt reserves, which shouldn’t be used too early in a startup company’s development phase.

VESL can not only give you access to the right lender, but also to the right trade credit insurer to guard your receivables against delinquency. Trade credit insurance helps MSME owners to take care of their creditworthiness. Don’t let delinquent or delayed invoices ruin your relationship with lenders, unless you don’t mind borrowing money from unscrupulous 5-6 lenders.

The Program Needs More Certainty

Department of Trade and Industry Secretary Ramon Lopez suggested the enactment of a law to stabilize the P3 program. Lawmakers earmark a specific amount for the P3 program from the national budget every year, but Lopez believes that regulating the SBC project will ensure that it can last indefinitely.

As of July 2019, more than 89,000 MSMEs in the country have reaped the benefits of the P3 program. In 2018, the SBC released a total of Php3 billion in debt financing assistance for the sector.


SBC’s P3 program has supported thousands of MSMEs in just two years. Unfortunately, though, the initiative doesn’t suit every business owner. Financing technology companies in the Philippines have stepped in to bridge the financing gap, in which VESL has taken the lead since 2017. Contact us now to learn more about our services. Why not try today? Registration is free, and we offer a pay-per-invoice arrangement for new and old clients.


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Non-Paying Clients Cause 1 Out of 10 Invoices to Be Delinquent

Trade credit insurance protects small and mid-size businesses in the Philippines against the risk of loan default, which can happen due to delinquent invoices.

by Randolf Santos

Has your business attracted more clients over the last 12 months? While this brings an increase in profit, your risk exposure to unpaid invoices grows at the same time.

Small and mid-sized enterprises (SMEs) in the Philippines often overlook the importance of trade credit insurance to cover unpaid invoices from their clients or end buyers. Some business owners believe that revolving credit lines and bride financing loans already protect them from delinquent receivables. However, most of them fail to analyze the probability of defaulting on their debts because of non-paying customers.

Do You Have Too Many Pending Invoices?

On average, receivables comprise over 40% of SME assets, according to Benel Lagua, Development Bank of the Philippines executive vice-president. Out of these receivables, Lagua claims that one out of 10 usually becomes delinquent. This means that if you trade at 10% margin you have to sell 10 times more the value of your delinquent invoice just to make up for the loss.

Aside from non-payment, you have to think of the possibility of delayed liquidation of receivables which is also detrimental to your business. If you financed your invoice, your lender may have already imposed late payment fees for your inability to settle your short-term debt on time.

With these risks in mind, it is important to find ways to secure your receivables. These include selling your invoice via factoring entities, creating a liquid account solely for bad debt reserves, and trade credit insurance.

What Are the Benefits?

Trade credit insurance coverage for businesses guarantees payment of up to 90% of delinquent invoices. Your receivables become delinquent or unpaid when your clients file for bankruptcy or insolvency.It also protects you against protracted default or delayed payment, which manifests when a client can’t settle their financial obligations within six months from the original payment due date. These commercial risks are especially high when there is global recession or even industry developments that certain firms cannot adopt to

Aside from commercial risk, trade credit insured businesses also reduce their exposure to political risks that are beyond their clients’ control, such as terrorism or war, hence affecting their capacity to pay on time.

You can choose between export credit insurance and domestic credit insurance. The latter refers to coverage for businesses that only cater to buyers in the Philippines. Companies with overseas buyers and clients should consider adding export credit coverage to their insurance policies.

Which Companies Need Insurance?

Businesses in the construction, exporting, manufacturing and trading industries usually offer payment terms to their clients, and will therefore benefit from protection against buyer payment default. This does not only apply to local buyers, but especially to foreign ones. In fact, the effect of a payment default from a foreign client may be larger, given the difficulty of collecting payments offshore.

In the U.K., government data showed that several companies already declared insolvency in the second quarter of 2019, due to the growing political and commercial uncertainty from Brexit. With a 12% increase in the same period, the level of insolvencies has reached the highest since 2014.

SMEs in the Philippines should also look out for signs of growing political tension because of the U.S. and China trade war, and the Hong Kong recession, largely because of ongoing protest movements in the autonomous region.

How Much Does Insurance Cost?

Trade credit insurance in the country remains largely unused, especially by small businesses, despite a continually changing financial system. Luckily for SMEs, it’s now easier to find a trade credit insurer through online platforms. One of these, financial technology companies,Vesl, gives SMEs access to trade credit insurance paid on a per invoice basis, making it practical and affordable.

The actual cost of insurance depends on your buyer’s risk, with additional fees to have your buyers assessed. You can register on Vesl’s platform for free to start the process.


Trade credit insurance coverage may not recover 100% of your unpaid invoices, as it is a mitigation tool to recover some loss rather than losing everything. Insurance coverage not only prevents you from experiencing a slimmer profit margin. It also ensures that your creditworthiness for small business loans doesn’t take a negative hit. If you constantly engage in net 30, 60 or 90 payment terms, your risk exposure to defaulting buyers remains high even when you successfully expanded your customer base over the past year.


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Lockton partners up to boost SME growth

by Gabriel Olano

As first published on Insurance Business Magazine:

Many economies in Asia are considered emerging markets, and these economies are propped up by small and medium enterprises (SMEs). According to the Asian Development Bank, SMEs compose 98% of all businesses and employ 66% of the labour force in the region, and are rightfully called the backbone of the Asian economy.

SMEs, due to their limited financial capacity, are exposed to a huge risk of financial loss in case a buyer is unable to pay its commercial trade debt, usually due to bankruptcy or insolvency. In order to protect itself from catastrophic losses, a business can take out trade credit insurance.

However, in emerging markets such as the Philippines, trade credit insurance is virtually unknown, which severely limits SMEs’ ability to enter dealings out of fear that the other party may default.

“Trade credit insurance in the Philippines is underpenetrated, and relatively unknown,” Maureen Nova Ledesma, co-founder of Singaporean-Filipino financial technology start-up Vesl, told Insurance Business.

Furthermore, trade finance options for businesses in the country are quite limited, especially for small businesses, Ledesma said. Exporting is not supported for businesses three years old and below, due to international credit facilities requiring high collateral.

To help boost the profile of trade credit insurance in the Philippine market, Vesl partnered with re/insurance broking giant Lockton to raise awareness and uptake of the cover in the market. The agreement between the two firms was signed in March.

According to Ledesma, through the partnership, Lockton will use the Vesl platform to market trade credit insurance in the country. In July, they were able to complete the first round of marketing and information sharing. She remarked that the response from the business community has been positive, from both the SME sector as well as from large businesses, many of which are still unprotected by trade credit insurance.

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Trade Finance Options in the Philippines

Here’s a compiled reference for those wishing to access business loans or trade financing in the Philippines.

What are the limitations?

As you can see, options are quite numbered, especially for new companies with little to no resources. More so, exporting is not supported for companies 0-3 years old as credit facilities for international trade would often require collateral and a banking relationship.

But fear not, for all hope is not lost.

With trade credit insurance, forward thinking lenders have approached our platform and are opening their doors to transactional lending (receivables finance or supplies finance) for domestic and international trade, even for new companies.

We are excited to share more about transactional lending with some of the lenders in the Philippines in our coming blog entries. At this point, perhaps your education about the different financing options is the most important thing we can share. We want to help you grow and expand. And know that if you are qualified, there are better options than paying 10% per month on your loans.

Stay tuned.

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Hanjin Bankruptcy – More than just the Banks

The corporate bankruptcy of Hanjin Heavy Industries and Construction Philippines recently shook the walls of five major banks in the Philippines, namely Rizal Commercial Banking Corp. (RCBC), Land Bank of the Philippines (LandBank), Metropolitan Bank & Trust Co. (Metrobank), BDO Unibank Inc. (BDO) and Bank of the Philippine Islands (BPI), as reports reveal the shipbuilding company’s USD 412 million loan to these Philippine lenders. Another USD 900 million is reportedly owed to South Korean banks.

However, these banks have downplayed the severity of situation, claiming that their total exposure is bearable when compared to total loans issued. RCBC, the most exposed of these Philippine lenders, disclosed that loans to Hanjin comprise just 1% of their total assets, and less than 2% of their total net loans.

While lenders have Hanjin exposures in tolerable levels, the same may not be the case for the shipbuilder’s suppliers. Based on a Business Mirror report dated Feb. 11, 2019, claims worth PHP 48 billion (approximately USD 923 million) were filed in Olongapo Regional Trial Court as of February 8, 2019. More than half of these claims are from other creditors and suppliers who may not have the same strict risk management protocol as the mentioned banks.

Several questions occurred to our team as we mulled over the potential devastation caused by Hanjin, not just to their lenders or clients, but also to their suppliers – How much share in these suppliers’ revenue does Hanjin contribute? Do they have enough cashflow to cover for losses or delayed payments from the shipbuilder? If not, do they have the means to mitigate these losses?

Failures of large companies may not always cripple the macroeconomy, but stories like these change the dynamics of an industry and create bad ripple effects on smaller companies in the value chain. It is always in our interest to dig deep, find out what could have been done to prevent such crises, and provide solutions that would actually do so. Stay tuned as we explore further how this case has affected other companies in the supply chain.

Related Links
• Claims vs Hanjin at P48B Long Rehab Process seen
• Hanjin Philippines Shipbuilding Bankruptcy
• Exposure to Hanjin Philippines may put local banks ratings under pressure — Fitch
• Clarification of News Article Jan 15 2019 — RCBC
• Debt-equity swap planned for HHIC

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