At any point in time, there are more than R300 billion in unpaid invoices in the South African economy. This is an enormous amount of working capital which, if freed up, could provide a meaningful financial injection into the economy. However, the solution is not to force companies to pay suppliers faster, since most companies operate in an extremely competitive global environment where they are forced to preserve capital themselves.
The solution is to implement supply chain finance programs for all large creditworthy companies, at no extra cost to them. Each of these programs is a critical entry point for thousands of suppliers to access cheap working capital without incurring any new debt.
How does supply chain finance work?
Supply chain financing is different from traditional factoring, where a supplier wants to finance its receivables, as it is a financing method that is initiated by the buyer to help its suppliers to finance their receivables far more easily and at a much lower interest rate than they would otherwise have access to.
Supply chain finance works best when the buyer has a better credit rating than the supplier, and can consequently source capital at a much lower cost from banks and financial institutions. This gives buyers the opportunity to negotiate better trade terms from the supplier, for example, improve pricing or extend commercial payment terms. Suppliers get access to much larger pools of cheap liquidity, which allows them to turn over inventory faster since capital constraints have been removed by the buyer’s supply chain finance program.
How can it help to survive a turbulent economic climate?
The COVID-19 pandemic and the resulting lockdown has put immense financial pressure on many South African businesses, especially SMEs. Many companies are struggling to access traditional forms of working capital – or other forms of borrowing. The need for cheap, readily accessible liquidity is now greater than ever. Over the last year, Addendum has implemented a record number of new supply chain finance programs in South Africa.
More and more clients are realising the benefits of supporting their suppliers financially through these programs, and in the process helping to shield critical suppliers against the financial effects of the pandemic. In 2021 we will continue to support our bank partners throughout Africa and roll out these programs to as many suppliers as we can.
The cheapest form of capital for SMEs and a necessity in South Africa
On average, more than 80% of a typical SME’s goods are sold to large, blue-chip customers. Depending on payment terms negotiated, most blue-chip customers in South Africa pay between 30 days and 150 days after delivery of goods. This requires a significant working capital investment by SMEs. Supply chain finance is a simple, online solution that allows an SME to receive immediate payment, through the click of a button, on all approved, unpaid invoices.
Best of all, the finance rate is based on the creditworthiness of the blue-chip customer and not based on the creditworthiness of the SME. For example the rate on Addendum programs vary between 4.5% and 7% per year (0.375% – 0.6% per month). SMEs do not have to apply to any bank for new facilities. They simply leverage the client’s unutilized funding lines.
The financial sustainability of any supply chain is of critical importance for the longevity of any business, and financing is the cheapest and most sustainable way of achieving just that.
Addendum’s approach is unique:
- A supplier can discount 100% of their unpaid invoices, including VAT. This is the most capital-efficient solution available to suppliers on the market today.
- Addendum’s solution is 100% free of charge for customers, so there are no hurdles or barriers to entry preventing a company from supporting all its suppliers financially
- Addendum provides the same level of care and support to all SME suppliers, regardless of size. Many financial services companies only support large suppliers and SMEs are generally ignored.
- Addendum’s platform offers clients full transparency into the cost associated with each invoice.
- Our global award-winning platform allows suppliers to receive payment within 24 hours at the click of a button
- Addendum is the African leader in this type of finance and offers access to more programs than any other service provider in Africa
- If a program does not exist yet, Addendum’s Rapid SCF product allows us to implement a new program within 30 days, free of charge.
- Addendum can service a company’s suppliers in 70 different countries and more than 40 different currencies.
- Addendum’s unique IP has unlocked billions in working capital for more than 30 JSE listed and multinational companies in South Africa.
- Addendum is the only African company that has won four global awards for African supply chain finance programs
- Most leading banks in Africa have chosen Addendum as their preferred service provider for this kind of financing.