Category News

In today’s interconnected global economy, exporting goods has become a vital avenue for economic growth and development. However, many African exporters often face significant challenges when it comes to managing their cash flow and accessing the working capital required to fulfill international orders. No wonder, Africa’s share of global trade is a paltry 3%!

Whereas there are many reasons – structural or otherwise – for this unsavoury state of affairs, inadequate working capital to finance export businesses ranks among the most critical. This is exacerbated by the fact that over 80% of cross-border business in Africa is undertaken by Micro, Small, and Medium Enterprises (MSMEs), 60% of which are women-owned. According to data from Africa Development Bank, out of every 10 MSMEs that apply for traditional trade finance facilities (LCs, Guarantees, etc), 6 or so are denied access principally because they cannot pass the credit assessment criteria.

Challenges for African MSMEs in cross-border trade

Among the numerous hurdles that African MSMEs in cross-border encounter include, but are not limited to:-

1. A growing trend by overseas customers to insist on open account trading as opposed to bank-facilitated documentary-based trade. This exposes them to credit risk from unscrupulous traders.
2. Limited access to credit insurance and risk coverage in Africa for overseas debtors thus exposing MSMEs to the risk of bankruptcy in event of default
3. Poor access to working capital (or where available, the cost is quite high).
4. Increasingly long credit terms imposed by overseas customers who are keen to leverage supplier finance for working capital
5. Limited knowledge about overseas markets, legal systems, collection procedures, etc

The hurdles for African exporters were compounded by the Covid 19 Pandemic and the War in Ukraine, a diabolic combination of which brought about negative health impact on employees and suppliers, challenges with availability and cost of Foreign Currency and – most importantly – the inability of local Banks to finance exports as a result of reduction of correspondence limits by overseas Banks, and serious global supply chain disruptions leading to unprecedented inflation and Fx instabilities in many a developing countries.

These challenges provide a compelling case why African exporters should adopt Export Receivables Discounting which addresses the above challenges and provides various benefits to both African exporters and their overseas customers:-

Benefits to the Exporter

• Working Capital improvement.
• Easy access to affordable finance, pegged to the creditworthiness of the importer.
• Reduction in time-consuming credit administration and costs.
• Reduction in risk while offering overseas customers competitive open account terms.
• Growth in turnover by offering flexible payment terms.
• Strengthening of revenues by improving Days Sales Outstanding (DSO).
• 100% credit protection against bad debts and customer insolvency.
• Better borrowing potential and an opportunity to make use of supplier discounts.

Benefits to the importer

• Improvement of working capital due to the delayed settlement of payables (Days Payables Outstanding extension).
• Payment to local accounts, no additional bank charges.
• The opportunity to buy goods using convenient open account terms.
• Expanded purchase power without using existing credit lines.
• Removing the need to open letters of credit, no administrative burden, and costs, and the ability to place orders swiftly.
• Communication with a local factoring company regarding disputes or delays of payments.

How Export Receivables Financing works

To access the Export Receivables solution, the following is the process:-

• Exporter onboards to a Financier’s digital platform and provides requisite KYC details.
• Exporter provides transaction details including Importer details for a credit check
• Financier digitally carries out a credit check and advises exporter of the maximum limit to be financed against the importer.
• Financier and the Exporter execute a Receivables Purchase Agreement
• Exporter ships goods and uploads export documentation to Financier through the digital platform (including the commercial invoice)
• Financier establishes a credit risk insurance line against importer default and finances, usually, up to 85% of the transaction value to the exporter (subject to positive limit check)
• Financier collects the proceeds of the full invoice on Maturity from the Importer and remits the balance to exporter (less financing cost)
• In event of default, Financier pursues payment through Credit Insurance Underwriter and remits the residual balance to the Exporter upon payment from the Underwriter. 

Kefa Nyakundi is a Financial Consultant and co-founder/CEO of Mtaji Technologies

Procurement is a critical business function that can have a significant impact on your business’ bottom line. With the increasing complexity of procurement processes, SMMEs are looking for ways to streamline their procurement process to save time, reduce costs, and improve efficiency. One of the most effective ways to achieve this is through automation.

In this article, we’ll explore how automation can help streamline your procurement process, and discuss some of the best practices to follow when implementing an automated procurement system.

Automated Purchase Orders (POs)

Creating purchase orders can be a tedious process that requires a lot of manual data entry. Automating the creation of purchase orders can eliminate the need for manual data entry, reducing errors, and saving time. Automated POs can also help you track and manage inventory levels more effectively.

Electronic Invoicing

Automated invoicing can streamline the accounts payable process, reducing the time and cost associated with manual processing. Electronic invoices can also reduce errors and improve the accuracy of your financial data.

Supplier Relationship Management (SRM)

Implementing an SRM system can help you manage your suppliers more efficiently, including automating communication, managing contracts, and tracking performance metrics. This can help you build stronger relationships with your suppliers, improve supplier performance, and reduce supply chain risk.

Automated Approval Workflows

Automating the approval process for purchase orders and invoices can help speed up the procurement process and reduce the risk of errors. Automated approval workflows can also help you maintain compliance with internal policies and external regulations.

Spend Analytics

Implementing an automated spend analytics system can help you gain visibility into your procurement spend, identify cost-saving opportunities, and make data-driven decisions. This can help you optimize your procurement process and reduce costs.

Contract Management

Automating your contract management process can help you manage contracts more efficiently, including automating renewal reminders, tracking key dates, and managing approvals. This can help you avoid missed deadlines, reduce risk, and ensure compliance.

Best Practices for Implementing an Automated Procurement System

To get the most out of your automated procurement system, here are five best practices to follow:

1. Define clear objectives: Before implementing an automated procurement system, define clear objectives for what you want to achieve. This can help you identify the right system and ensure that you get the expected results.
2. Choose the right system: Choose an automated procurement system that fits your specific needs and integrates with your existing systems.
3. Train your staff: Proper training is critical to ensure that your staff can use the new system effectively. Invest in training to ensure that your staff is comfortable using the new system.
4. Monitor performance: Monitor the performance of your automated procurement system regularly to identify any issues or areas for improvement.
5. Continuously improve: Continuously look for ways to improve your procurement process and optimize your automated system to achieve better results.

In conclusion, Automating an SMEs procurement process can help save time, reduce costs, and improve efficiency. By automating routine tasks, the promoter can focus on more strategic activities that drive value for business. By following best practices and implementing the right automated procurement system, SMEs can streamline procurement processes and achieve better results. So, go ahead and give automation a try, and you may be surprised at how much more time you have to spend on the things you enjoy!

Kefa Nyakundi is a Financial Consultant and co-founder/CEO of Mtaji Technologies

Supply Chain Finance (SCF) – variously referred to a Supplier Finance, Reverse Factoring, or Payables Finance has been hailed as a working capital solution that benefits buyers, suppliers as well as Financiers/investors. This alignment of interests ensures that all parties play their part in setting up the requisite structure for ‘selfish’ interest.

The current global environment occasioned by Covid-19 has created both a health and financial crises that has disrupted many a supply chain. This is forcing many companies to better manage liquidity and strengthen their balance sheet. SCF can often be an attractive way for companies to improve their working capital position. The key idea behind SCF, is to provide suppliers with access to advantageous financing facilities by leveraging the buyer’s stronger credit rating.

In this arrangement, the buyer can benefit from longer supplier payment terms and a reliable, financially robust supply chain while the suppliers benefit through access to accelerated cash flow at preferential interest rates. Hence SCF benefits the whole supply chain.

Principles

An article by Pricewaterhousecoopers (PWC) identifies the following as the principles of supply chain finance:

1. The supplier benefits from having access to finance at a preferential interest rate linked to the buyer’s creditworthiness. To make this feasible, the buyer’s rating must be better than the supplier’s.
2. The buyer introduces the supplier to the financing institution providing the SCF facility and terms of business are agreed.
3. The buyer approves the supplier’s invoices and confirms that it will pay the financing institution for these at a fixed determinable future date.
4. The supplier sells (discounts) the invoices to the financing institution at a predetermined discount rate and receives the funds straight away.
5. The buyer pays the financing institution as agreed.
6. In parallel to the SCF facility, the buyer is typically able to negotiate better payment terms and /or prices with the supplier.

Integrate with the Procure to Pay process

To maximise the working capital potential of a SCF programme, PWC recommends that it should be part of an integrated ‘procure to pay’ (PtP) strategy and approach. This means that the buyer needs to have robust PtP controls in place, as well as making sure that its Accounts Payable team processes and confirms invoices efficiently.

They see the main focus areas of an integrated PtP to be:

• Invoice process optimisation – Confirm invoices as quickly as possible so that they become eligible for financing.
• Payment term enhancement – Optimised and standardised terms across the group.
• SCF framework – Provide a SCF finance facility for selected suppliers through an independent financing institution and specialised platform.
• Optimised supplier payment cycles – Group-wide payment cycles aligned to standard payment terms and a coordinated cash management strategy.

Benefits

The following are the benefits accruing to different parties:

• Buyer Benefits:
  1. Free Source of working Capital which frees credit lines for CAPEX
  2. Reduced Supply Chain Risk
  3. Better trade terms with suppliers benefitting from easy access to liquidity
  4. Can lead to reduced inventories and re-order levels
  5. Lowe admin costs through automation of supplier payment processes
• Supplier Benefits:
  1. Access to early payment and improved working capital.
  2. Affordable finance leveraging buyer’s good credit rating
  3. Cashflow predictability and certainty
  4. More liquid balance sheet allows access to other forms of credit
• Financier/Investor benefits:
  1. Significantly reduced credit risk and reduced origination costs
  2. Stable returns through relatively short term exposures
  3. Non-Committed lines making it easy to reprice if need arises
  4. Relatively low-risk assets; attracting low economic capital requirements
• Wider benefits:
  1. Funded SME suppliers become stable employers
  2. Providing finance to the un-bankable as no evaluation of supplier is required
  3. Acceleration of local and cross border trade that could stimulate demand and consumption leading to enhanced economic growth

Kefa Nyakundi is a Financial Consultant and co-founder/CEO of Mtaji Technologies

In today’s fast-paced business environment, organizations are constantly searching for ways to improve their operations and gain a competitive edge. One area that has seen significant advancements in recent years is procurement, with digital procurement emerging as a game-changer for many businesses. Digital procurement involves the use of technology and software to manage and automate the procurement process, from requisition to purchase order to payment.

According to a recent report by Grand View Research, the global digital procurement market is expected to reach $6.1 billion by 2027, growing at a CAGR of 9.6% from 2020 to 2027. This growth is being driven by the increasing adoption of cloud-based procurement solutions, the need for better supply chain visibility and control, and the demand for real-time data analytics and insights. In Africa, the digital procurement market is also growing, with countries like Kenya making significant strides in the adoption of digital procurement solutions.

Digital Procurement is a game-changer!!

One of the key drivers of digital procurement is the need for efficiency and cost savings. By automating procurement processes, businesses can eliminate manual tasks such as data entry, paperwork, and phone calls, which can be time-consuming and error-prone. Digital procurement solutions can also reduce the risk of maverick spending, where employees make purchases outside of the procurement process, by providing a centralized platform for managing procurement activities.

Another benefit of digital procurement is enhanced transparency and visibility. With a digital procurement platform, businesses can track every aspect of the procurement process, from requisition to payment, in real-time. This transparency can help businesses identify bottlenecks and inefficiencies in their procurement processes and make data-driven decisions to improve them. It can also help businesses ensure compliance with regulatory requirements and mitigate the risk of fraud and corruption.

In addition to efficiency and transparency, digital procurement can also improve risk management. With a digital procurement platform, businesses can identify and mitigate risks across their supply chain, from supplier performance to geopolitical risks. This can help businesses avoid disruptions to their operations and protect their brand reputation. Digital procurement can also help businesses ensure compliance with ethical and sustainability standards, which are becoming increasingly important to consumers and investors.

African SMEs adopting digital procurement can now compete with larger businesses unlike in the past when they struggled to compete due to the high cost and complexity of manual procurement processes. With digital procurement, SMEs can now access the same procurement technologies and tools as larger companies, enabling them to compete more effectively in the market.

Digital procurement can also help to improve supplier relationships. By using digital tools to manage procurement, businesses can improve the visibility of their supply chain, making it easier to track supplier performance and ensure that they are meeting their contractual obligations. This can help to build trust and collaboration between businesses and their suppliers, leading to stronger, more productive relationships.

There are many examples of manual procurement processes in Africa that are costly and time-consuming for SMEs. For example, many businesses still rely on manual processes for supplier selection, negotiation, and contracting. This can be a time-consuming process that involves multiple rounds of negotiations and contract revisions. By digitizing this process, businesses can streamline supplier selection and contract management, reducing the time and resources required to complete these tasks.

Another example is purchase order management. Many SMEs in Africa still rely on manual processes for purchase order management, such as email or paper-based systems. This can lead to errors and delays, as well as difficulties in tracking and managing purchase orders. By digitizing purchase order management, businesses can automate the process, reducing the risk of errors and improving visibility and control over the procurement process.

Challenges

The benefits of digital procurement are clear, but there are still challenges to be overcome. One of the biggest challenges is the resistance to change from employees and suppliers who are accustomed to traditional procurement processes. Businesses need to invest in change management and provide training and support to help employees and suppliers adapt to digital procurement. They also need to ensure that their digital procurement platforms are secure and compliant with data privacy regulations.

In conclusion, digital procurement is the future of business, and it has the potential to transform the procurement landscape in Africa. By digitizing procurement processes, SMEs can compete more effectively with larger businesses, improve supplier relationships, and reduce the time and resources required to complete procurement tasks. Examples of manual procurement processes that are costly to SMEs in Africa, such as supplier selection, negotiation, and contract management, as well as purchase order management, can be digitized to achieve these benefits. As businesses in Africa continue to adopt digital technologies, digital procurement will become an increasingly important tool for driving efficiency, productivity, innovation and growth

Kefa Nyakundi is a Financial Consultant and co-founder/CEO of Mtaji Technologies