In South Africa, Improving SMB Cash Flow – And Trade Credit Pain Points

No matter where you look, the pandemic has shone a spotlight on the pressures faced by smaller firms trying to manage cash flow.

Getting funding from banks – money that might help keep the lights on and the operations afloat until better days surface – is no easy task. And chasing down late payments is a full-time pursuit – particularly where trade credit is involved.

In South Africa, one company, Lulalend, which is focused on SMBs and business short-term lending, is leveraging online conduits to get firms paid faster. The company recently debuted Lulapay to help speed up payment of invoices.

In an interview with PYMNTS, Thomas McKinnon, head of product at Lulalend, noted that Lulapay represents a digitally-driven solution that seeks to mollify the pressures that exist within trade credit.

“Lulapay is essentially a buy now, pay later product” focused on B2B transactions, he said, with built-in credit and payment elements. “It means SMBs can still offer their customers the option of a trade credit-like product, but Lulalend takes the responsibility for assessing its customer and makes the decision of whether to offer terms or not.”

The company pays SMBs directly and collects from their customers. Those customers can then pay Lulalend across 30 to 90 days, with no fees if those firms settle with Lulalend within 30 days. In terms of funding, Lulalend is a balance sheet lender and is subsidized by global impact funds and DFIs (development finance institutions).

“The ‘late payment” problem basically disappears for SMEs using Lulapay as a payment method,” maintained McKinnon.

Solving For Some Pain Points 

At a high level, SMBs in South Africa already face several pain points within the financial services ecosystem – where getting capital from FIs, in general, can be difficult.

“Traditional lenders have a history of treating SMEs as one big customer segment. Maybe not from an acquisition perspective, but certainly from a product perspective,” noted McKinnon. “Even applying an industry lens doesn’t give you truly valuable insights into a business’ specific needs. No two businesses are the same. And cookie-cutter funding products and ‘old-school’ scorecards just don’t reflect this reality.”

The traditional funding routes, he said, are marked by high decline rates and slow applications – with a disproportionate impact on SMBs. McKinnon noted that as many as 90 percent of SMB funding applications are declined by traditional lenders. Amid the current environment, he pointed out that many companies are interested in obtaining bridge financing as they move (at least partially) out of lockdown situations.

“They’re waiting for money and also holding onto money they owe. So getting cash flowing through the economy is proving to be a challenge. We’re definitely seeing sentiment change and confidence grow with time, though,” McKinnon told PYMNTS.

In the bid to get cash flowing more smoothly, he pointed to Lulapay as a way to get businesses paid more quickly. Pre-pandemic, he noted, South African SMBs offering trade credit were waiting an average of 65 days to get paid.  That wait time has only increased as COVID-19 has taken root. The problem is widespread, across all industries.

In a nod to the advantages of using online channels, McKinnon noted that SMBs are able to apply for funding using mobile devices and providing data through, for example, linked bank accounts or accounting data. Assessments are done in real time.

“Using technology like data aggregation, machine learning and various automation tools, we can remove the subjectivity from credit decisions. It means we can make decisions faster and streamline the entire experience for SMBs,” he told PYMNTS.