Improving the cash flow of SMEs in South Africa

Everywhere you look, the pandemic has spotlighted the pressures facing smaller businesses trying to manage their cash flow.

Getting funding from banks — money that could help keep the lights on and operations running until better days come — is no easy task. And chasing late payments is a full-time job — especially where trade credit is involved.

In South Africa, a company lulling, which focuses on SMBs and short-term business loans, uses online conduits to get businesses paid faster. The company recently launched Lulapay to speed up bill payment.

In an interview with PYMNTS, Thomas McKinnon, Product Manager at Lulalend, noted that Lulapay represents a digitally-driven solution aimed at alleviating 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. “This means SMEs can still offer their customers the option of a trade credit-like product, but Lulalend takes responsibility for evaluating its customers and making the decision on whether or not to offer terms.”

The company pays SMEs directly and collects from their customers. Those customers can then pay to Lulalend for 30 to 90 days without any fees if those companies settle with Lulalend within 30 days. In terms of funding, Lulalend is an on-balance sheet lender and is subsidized by global impact funds and DFIs (development finance institutions).

“The ‘late payment“The problem basically goes away for SMBs using Lulapay as a payment method,” McKinnon claimed.

Solution for some pain points

At a high level, SMEs are in South Africa already faced several vulnerabilities within the financial services ecosystem – where raising capital from FIs in general can be difficult.

“Traditional lenders have long treated SMEs as a large customer segment. Maybe not from an acquisition perspective, but certainly from a product perspective,” noted McKinnon. “Even applying an industry perspective doesn’t really give you valuable insight into a company’s specific needs. No two companies are the same. And old-school, ready-made financing products and scorecards just don’t reflect that reality.”

The traditional financing channels are characterized by high rejection rates and slow applications – with a disproportionate impact on SMEs. McKinnon found that up to 90 percent of SME financing applications are rejected by traditional lenders. Amid the current environment, he pointed out that many companies are interested in obtaining bridging funding as they emerge (at least partially) from lockdown situations.

“They wait for money and also hold on to money they owe. Hence, getting cash to flow through the economy is proving to be a challenge. However, we are definitely seeing sentiment changing and confidence growing over time,” McKinnon told PYMNTS.

In an effort to make cash flow smoother, he pointed to Lulapay as a way to get businesses paid faster. Before the pandemic, he noted, South African SMEs offering trade credit waited an average of 65 days for payment. This waiting time has only increased since COVID-19 has taken root. The problem is widespread, across all industries.

Alluding to the benefits of using online channels, McKinnon pointed out that SMBs can apply for funds using mobile devices and provide data, for example, via linked bank accounts or accounting data. Evaluations take place in real time.

“By using technologies such as data aggregation, machine learning and various automation tools, we can remove subjectivity from credit decisions. This means we can make decisions faster and streamline the whole experience for SMEs,” he told PYMNTS.



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