Financing Working Capital in Emerging B2B Spaces

There has been an increase in business-to-business (B2B) payments as a result of the pandemic – a 10% year-over-year growth, according to data from McKinsey.

B2B payments remain a challenge for many small and medium-sized enterprises (SMEs) in emerging markets like Africa, given the high cost of invoice processing – approximately $16 per invoice processed – and the number of local businesses that still rely on the traditionally manual and time-consuming process of reconciling incoming payments with billing data.

According to John Kiptum, CEO of Kenyan fintech start-up Churpy, these challenges end up creating a negative chain reaction, further complicating the process for these companies.

“There’s an impact on customer satisfaction, service delivery, increased bad debts because you’re not properly tracking who owes you, who doesn’t,” Kiptum told PYMNTS in an interview. “And you also provision a lot of money for each invoice, because as an accountant you don’t have time.”

The fact that businesses often opt for credit terms, taking invoices and partially repaying in 60 or 90 days adds another layer of complexity to the manual reconciliation process.

“So you have a bill with three or four different banks, from different [payment] canals. You can imagine what that does to an accountant who has to redo that for, say, 1,000 or 2,000 bills,” he explained.

The problem is sector-neutral and affects all industries, Kiptum added, whether manufacturing, retail or technology-focused companies, all of which are hungry for an innovative solution to fill the gap. this gap.

It’s this hole that the FinTech company is trying to fill with its artificial intelligence (AI)-enabled Software-as-a-Service (SaaS) product for customer account automation, a space where Kiptum said that today there are very few solutions for companies. Local businesses can now seamlessly reconcile their books and make payments on pending invoices directly through their platform.

See also: How automation reduces month-end headaches for the CFO

To easily compare bills to incoming payments, the startup has also connected to some of the region’s largest banks – Citibank, Standard Chartered, NCBA and ABSA – via application programming interfaces (APIs). This gives its business customers access to real-time statements and transaction data extracted from more than 20 enterprise resource planning (ERP) systems, including SAP, Microsoft Dynamics and Quickbooks, in the Churpy platform. .

“That’s why the integration becomes so seamless, because if you’re a Citibank customer and you’re on Quickbooks, then there’s literally nothing to do,” he remarked. “We’re talking about logging into ERP, logging into your bank, pulling billing data and financials, reconciling, and then sending the corresponding entries back directly into ERP.”

Now the Nairobi-based startup, founded in April 2021, is looking to expand beyond its home turf, leveraging the $1 million seed funding it recently raised to establish a foothold. in Nigeria, South Africa and Egypt.

Working capital financing

The Africa-focused FinTech company is also exploring a financing product for its clients to bridge the huge financing gap for working capital needs of SMEs – estimated at around $340 billion across Africa by the Bank. world, Kiptum said.

“This is an issue that requires a complete change in the way financing products are [designed]and the last person you would want to rely on to mitigate this is a bank, because they are extremely traditional, extremely risk averse and very paper-based in terms of running their business,” he noted.

It can also be difficult for SMEs to provide the documentation (multi-year financial statements or proof of goods supplied in the form of an invoice or purchase order) requested by banks to process their credit applications. Additionally, Kiptum said that small businesses do not always have the collateral, whether it is land title or assets, to back up their claims, which further complicates their access to credit.

Related: Revenue-Based Financing Drives Growth of E-Commerce and SaaS in MENA

To bridge this gap, the company is working with large businesses and corporations to set up a trade finance program that can support SMEs with 90-day advance credit, for example.

“[Churpy] goes to one stop – my client – and if they can guarantee that in 90 days I will be paid then I will go ahead and give that money to the SME because I know I will be reimbursed in the future “, did he declare. mentioned.

Since Churpy is connected to both the ERP and the bank, Kiptum said he would be able to easily validate invoices and verify that they come from a customer who has done business with the company. X over the last five years, thus eliminating any risk of fraud. .

Overall, the goal is to simplify the loan process by removing SMEs from the application process entirely.

Moving forward, Kiptum said meeting the “huge” need for working capital funding is where FinTech sees huge potential for business growth: “The growth product for us primarily relates to working capital funding – it’s such a huge gap and no one has yet figured out how to scale this quickly.

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Michael J. Birnbaum