FinTechs Think Big to Help Africa’s SMBs Find Working Capital

Churpy, B2B, payments

There’s been an increase in business-to-business (B2B) payments in the wake of the pandemic — a 10% year-over-year growth, according to data from McKinsey.

B2B payments remain a challenge for many small- to medium-sized enterprises (SMEs) in emerging markets like Africa, given the high cost involved in processing invoices — about $16 per every invoice processed — and how many local companies still use the traditionally manual and time-consuming process of reconciling incoming payments to invoice data.

According to John Kiptum, CEO at Kenyan FinTech startup Churpy, these challenges eventually create a negative chain reaction, further complicating the process for these businesses.

“There’s an impact to customer satisfaction, service provision, increase in bad debt expenses because you’re not adequately tracking who owes you, who doesn’t owe you,” Kiptum told PYMNTS in an interview. “And you’re also provisioning quite 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 paying back partially in 60- or 90-days terms adds another layer of complexity to the manual reconciliation process.

“So, you have one invoice with three or four different banks, from different [payment] channels. You can imagine what this does to an accountant who has to do this again to, let’s say, 1,000 or 2,000 invoices,” he explained.

The issue is sector-agnostic and cuts across all industries, Kiptum added, whether it’s manufacturing, retail or tech-led businesses, all of which are eager for an innovative solution to fill that gap.

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

See also: How Automation Reduces Month-End Close Headaches for the CFO

To easily compare the invoices against incoming payments, the startup has also connected to some of the largest banks in the region — Citibank, Standard Chartered, NCBA and ABSA — via application programming interfaces (APIs). This gives its business clients access to real-time statements and transaction data pulled from 20-plus enterprise resource planning systems (ERPs), including SAP, Microsoft Dynamics and Quickbooks, into the Churpy platform.

“That’s why the onboarding is becoming so seamless, because if you’re a Citibank customer and you’re on Quickbooks, then there’s literally nothing to do,” he remarked. “We are talking about connecting to ERP, connecting to your bank, pulling in the invoice data and the financial statements, doing the matching and then sending back the matched entries directly into the ERP.”

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

Working Capital Financing

The Africa-focused FinTech firm is also looking into a financing product for its clients to fill the huge gap in working capital financing needs of SMEs — estimated at about $340 billion across Africa by the World Bank, Kiptum said.

“It’s a problem that needs a complete shift in how financing products are [designed], and the last person you’d ever want to depend on to alleviate this problem is a bank because they are extremely traditional, extremely risk-averse and very paper-based in terms of how they run their business,” he noted.

It can also be a challenge for SMEs to provide the documentation — multiple-year financial statements or evidence of supplied goods in the form of an invoice or a purchase order — requested by banks to process their credit requests. Additionally, Kiptum said small businesses do not always have the collateral, be it a title document for land or assets, to underpin their requests, further complicating their access to credit.

Related: Revenue-Based Financing Drives eCommerce, SaaS Growth Across MENA

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

“[Churpy] is going to just one stop — my customer — and if they can guarantee that in 90 days I will be paid, then I will go ahead and release that money to the SME because I know I’ll be reimbursed in the future,” he said.

Since Churpy is connected to both the ERP and the bank, Kiptum said it will be able to easily validate invoices and verify that they’re coming from a customer that has been dealing with company X in the last five years, 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 that “dire” working capital financing need is where the FinTech sees huge potential for business growth: “The growth product for us is highly around working capital financing — it’s such a huge gap and nobody has yet figured out how to quickly scale this.”