Hi Sami, nice to meet you. Can you tell us about your background and professional experience?
First, thanks Phil for holding this interview! Regarding my educational background, I did my BBA at HEC Montreal and my PLD at Harvard Business School. As for my professional background, I have over 15 years of experience in business development. After holding senior positions in the pharmaceutical industry, I pursued my career in financing solutions, which allowed me to become a shareholder of private companies specialised in asset-based lending, invoice financing and factoring.
I’m currently director of the International Factoring Association – Quebec Chapter. I’m also chairman of the Montreal Connexions Group, executive director of the Quebec Young Trading Boards of Commerce Association, and ambassador for the Montreal Museum of Fine Arts.
What’s the story and concept behind Montreal Heritage Capital?
Montreal Heritage Capital was founded in response to a growing need for flexible financing solutions for SMEs; we allow to obtain relevant and reliable solutions for their cashflow requirements.
MHC is a specialised financing company offering unique solutions to SMEs working with the governmental and healthcare industry. Our niche includes all suppliers working with municipal, provincial and federal agencies. We provide our partners financing solutions that no other bank in Canada offers. We don’t replace their financial institution. What we do is partner with our customers for specific projects when they need immediate access to capital.
Our flagship product is factoring. A factor is a financial intermediary that purchases receivables from a company. Factoring is essentially a funding source that agrees to pay the company a percentage of the value of the invoice less a service fee. The factor advances the invoiced amount to the company and the balance upon receipt of funds from their customer.
Montreal Heritage Capital will act as a growth partner, and we’re committed to providing a unique, quality service. We set up an in-house database management process and a strict monitoring call protocol. We treat our customers as we would like to be treated.
What are the minimum criteria to qualify for financing with your company?
The client must first submit its accounts receivable at Montreal Heritage Capital for approval. Within a period of less than 24 hours, we conduct diligent inquiries of the account receivable through our approval process. Minimum criteria to qualify for financing are the following:
- Annual sales greater than $500,000.
- Accounts receivable between $5,000 to $200,000, up to 180 days’ terms.
- Growing company currently overgrowing their credit line capacity.
Once we have all the documents required, we’ll review internally and come back to them with a go/no-go, with the amount, within four days.
What is your strategy to educate prospective clients and partners about factoring? Do you sometimes encounter resistance?
Startups and SMEs must overcome lots of challenges, especially during their initial and expansion stages, as they struggle to finance their operations, grow their customer base and make a proof of concept. There are several reasons why startups fail, and independently of their funding status or the sector they’re evolving in, one of the biggest reasons for failure is that these companies run out of cash quickly. If these companies have a viable business model with a strong business idea, they should be able to access financing, establish themselves in the market, and grow. SMEs are at a disadvantage in terms of credit rationing and finance gaps, driving the need for alternative funding sources, as traditional financial institutions are more than ever before too risk-averse to provide loans to companies with no longstanding credit history. This need for nontraditional funding sources is a key growth driver for the factoring industry, as it’s a suitable and viable solution for companies to get the money they need to keep operating; it helps to break their dependence on banks and traditional loans.
We understand that access to cash flow is the main challenge faced by growing companies, and that’s why we position ourselves should they ever require immediate access to capital. This ensures they can take on new projects and manage existing ones at full capacity when they’re in negative cash flow cycles. We don’t replace their existing financial institution – we’re like their short-term corporate credit card. We’re their financial partner that’s on call 24 hours a day to make sure their growth has no restrictions.
Right now, private finance isn’t a regulated industry in North America. Do you think this could change in the future? If so, how would this affect your business model?
With concerns to save time and costs for every party involved in the process, the clear majority of companies in the financial services industry are embracing the adoption of technology. At a time when technological advancements happen faster and encompass every aspect of our lives, this shift to digitise financial services is natural and necessary.
As the financial services industry is shifting towards digitisation and undergoing a fundamental transformation within its regulation system, all players need to understand the necessity of digitising all aspects of the sector and go beyond the borrowing and lending processes, and include investment management, retail payments and market analytics. The key is that the use of technology has infinite applications, and can provide more leads as more data is gathered over time.
For companies in the financial services industry that cannot undergo a total digital transformation, (stress too high on current systems, not enough resources, and so on), the use of third party software is also a viable solution. In fact, there’s a multitude of newcomer third party technology companies whose aim is to serve companies that want to leverage the power of technology, but cannot undertake a total shift in their strategies towards digitisation. As an example, Bectran – a leading SaaS platform – has teamed up with the Credit Management Association (CMA) to create a new service accessing trade credit data from the three main credit reporting bureaus. This will help customers access more pertinent data on the click of a mouse, and the information can be tailored for the businesses’ specific needs.
The use of third party software can serve as a transition phase for companies that want to do a complete digital shift in the future, or save costs by outsourcing part of their processes to third parties.
All these innovations are currently being scrutinised by US Congress, and may in future become regulated. I believe Canada won’t regulate until then.
Are you looking to expand beyond central Canada at some point?
In North America, several banks have started providing online loan platforms, either as an internal infrastructure strategy or through alliances with outside platforms, to radically change the borrowing experience of their customers and increase traction. In the US, American Express is about to debut its own online loan platform for SMEs to more effectively target and serve individuals and businesses who already are Amex clients. They will offer a maximum credit limit of USD $750,000.
In Canada, some banks are teaming up with factoring companies for their online platforms and automated processes, targeting SMEs to tap indirectly into this market. In fact, only a few of the major banks offer factoring solutions. Yet, they’re usually only interested in clients with over $8m in revenues, with maximum A/R payment terms of 90 days. Knowing that, per Statistics Canada, 98% of all businesses are SMEs, and that they represent 70% of the total private labour force, these alliances will provide a strong advantage over other competitors in the industry. The use of algorithms, software and technology to analyse data will enable them to approve loans faster than ever before, and to be more effective in doing so by reducing the risk of clerical errors.
What’s next for the company in 2017?
While most financial companies and banks are catching up with the digitisation of their processes, other companies and tech leaders are already working on the next big step in digitisation. In fact, IBM is pushing and helping industries get into blockchain technology, which consists of a distributed ledger system destined to record and manage sophisticated financial agreements between firms, hence allow every player in the process to see the same agreed set of legal documents. As an example, IBM Global Finance division has developed a blockchain application called the “shadowchain”. While IBM is not, for now, redoing its global financing and lending systems on a blockchain, the shadowchain is used to enhance the business process with new features that it currently does not. However, for these new technologies to be democratised, a broader legal context is also required, and the involvement of public institutions and policy makers is necessary.
The future will tell us how technology and data can be used, combined and leveraged to create value in all forms and processes. More importantly, understanding how technology, data and artificial intelligence can be integrated altogether will define the future of digitisation.