CASE STUDY: Addendum Supply Chain Finance programme boosted South Africa’s struggling tourism industry during the Covid pandemic. With an innovative financing solution, Tourvest Travel Services (TTS) and Addendum Supply Chain Finance helped alleviate the Covid 19 pandemic’s devastating impact on South Africa’s tourism industry and small businesses.
At the height of the lockdown, travel transaction volumes reduced to less than 2% compared to 2019
Tourvest Travel Services (TTS) is a leading Travel Management company in Southern Africa and supports more than 5 000 suppliers. Though some are large airline companies, most of these businesses are SMMEs (Small, Medium and Micro Enterprises) like B&Bs or small shuttle services. In South Africa SMMEs “employ between 50 and 60 percent of the country’s workforce”. **
The Covid pandemic ravished South Africa’s tourism industry. At the height of the lockdown, travel transaction volumes reduced to less than 2% compared to 2019. The impact on the industry’s small suppliers were devastating. TTS and Addendum Financial Technologies, Africa’s largest supply chain finance programme provider, joined forces to help suppliers survive the financial impact of the pandemic.
Supply Chain Finance substituted B2B credit card payments to benefit Tourvest Travel Services and their suppliers
The tourism industry is unique in that suppliers usually receive payment by credit card, debit card or virtual credit card (VCC) from their customers, typically travel management companies like TTS. A standard transaction would incur total merchant fees of between 1.6% and 5.5%, depending on the size and sales volume of the supplier (merchant). These fees include issuing bank fees, acquiring bank fees, network fees (e.g., Visa, Mastercard) and VCC service provider fees.
TTS and Addendum’s first-of-its-kind programme saw the replacement of VCC payments with Supply Chain Finance. The result was an innovative first-of-its-kind deal structure that lowered payment-related fees significantly for all parties. As a first step TTS engaged with suppliers and agreed immediate payment discounts that were significantly lower than merchant fees previously charged. This resulted in instant savings for suppliers.
Margins in the tourism industry are notoriously slim. The savings Supply Chain Finance programme produced, offered instant relief to TTS suppliers at a time when businesses were suffering due to travel restrictions. The discounts negotiated by TTS were used to fund critical working capital in the business, which helped it survive the unforeseen challenges of the Covid pandemic and ultimately strengthening its leadership position in the market.
A win-win solution
DTTS’ supply chain finance program increased efficiency by removing cost from its supply chain and created a win-win solution for all parties. Suppliers received payment within one business day, but most importantly, a staggering amount of cost was removed from TTS’ supply chain.
Scholtz Fourie, CFO of TTS has the following to say about the deal: “Our SCF partnership with Addendum has helped us strengthen our partnerships with new and existing suppliers. It is very rare to provide a true win-win solution, and even more so during the past two years in the travel industry. But with our Addendum SCF program we were able to do just that and pave the way for the inevitable recovery of the travel industry and future growth of TTS. We managed to strengthen our balance sheet while reducing costs for our partners and subsequently giving our customers a more valuable service.”
More than 300 suppliers were onboarded by Addendum in the first month and the program continues to grow rapidly. Given the current rate of expansion projections show all 5000 suppliers will eventually sign up.
*SMMEs – Small to Medium and Micro Enterprises
** Source: McKinsey; How South African SMEs can survive and thrive post COVID-19