Why does Supply Chain Finance (SCF) continue to grow fast despite our challenging economy? At Addendum we have seen a trading volume increase of 72% during the last financial year. We are experiencing continued interest in our Supply Chain Finance (SCF) solutions by South African corporates and their suppliers.
Supply Chain Finance has fundamentally changed the way business executives think about working capital and supplier partnerships. Based on our analysis, suppliers in Africa can reduce the cost of working capital funding by between 10% and 60%. At Addendum, we celebrate every instance of positive impact that our Supply Chain Finance programs have on companies, especially SMMEs.
Co-founder, MD & Head Of Working Capital at Addendum
At Addendum we have seen a trading volume increase of 72% during the last financial year. We are seeing continued interest in our Supply Chain Finance (SCF) solutions by South African corporates and their suppliers.
Globally Supply Chain Finance, as a financing solution, (also referred to payables, reverse factoring, and supplier finance) is not losing its growth-momentum, despite the tough economic conditions. BCR’s World Supply Chain Finance 2023 Report echoes this growth trend. Their research for 2020 and 2021 showed that globally, the “strongest growth is reported in Africa at 40% both by volume and in funds in use.
The Covid-19 Catalyst
The Covid-19 pandemic served as a catalyst for the global growth in adoption of SCF. Disruptions to the global supply chain landscape and the digitisation of the workplace, placed a spotlight on Supply Chain Finance as the most effective tool to manage working capital.
The BCR’s World Supply Chain Finance 2023 Report research revealed that during Covid-19, SCF volumes surged by an 35% to reach USD 1.3tn in 2020, soaring from USD 971bn in 2019. Africa, aligned with this global trend, experiencing a year-on-year growth of 34%, as the SCF market expanded from USD 16bn to USD 21bn during the same period.
In the early stages of the pandemic, it became evident that small and medium-sized enterprises (SMEs), more so than larger corporates, faced a significant liquidity squeeze, impeding their access to sufficient working capital. To prevent disruptions in their supply chains caused by the failure of smaller suppliers, larger corporates swiftly responded by embracing SCF.
This response led to a substantial increase in both the scale and number of SCF schemes launched to address the urgent financing needs of smaller suppliers and buyers. The increased awareness of Supply Chain Finance (SCF) and its benefits triggered by the Covid-19 pandemic, has positioned SCF as a crucial component in the business landscape of South Africa.
Cash Flow Management: The SCF Advantage
We’ve seen first-hand how SCF has become an increasingly popular tool for businesses in South Africa. We believe one of the reasons it is gaining more traction every year, especially now in the current economic environment, is its ability to create a sustainable working capital solution quickly and efficiently for businesses. By addressing the common issue of delayed payments and limited credit access, our SCF programs provided a lifeline for thousands of businesses that might otherwise struggle to stay afloat. It enabled them to sustain their operations, meet financial obligations, and continue to grow despite challenging times. It’s not just about survival, though.
With improved liquidity, businesses are better equipped to meet their financial obligations and embrace growth opportunities that might arise.
Mitigating Financial Risks
With the uncertain economic conditions in South Africa, businesses face heightened financial risks, including supply chain disruptions, higher interest rates, credit defaults, currency risk and general market volatility. Supply Chain Finance acts as an important risk mitigation tool by facilitating collaboration and fostering stronger relationships between buyers and suppliers.
“Supply Chain Finance has fundamentally changed the way business executives think about working capital and supplier partnerships. Based on our analysis, suppliers in Africa can reduce the cost of working capital funding by between 10% and 60%. At Addendum, we celebrate every instance of positive impact that our Supply Chain Finance programs have on companies, especially SMMEs.” says Emuel Schoeman.
Addendum has implemented numerous successful SCF programs for dozens of large local listed and multinational companies. Our programs have created financial stability within the supply chain, lowered costs, improved access to capital, reduced the risk of supplier insolvencies and ensured the continuity of operations. Risk mitigation is becoming increasingly critical for African businesses, and Supply Chain Finance is an important tool to achieve stability in a volatile and challenging economic landscape.
Strengthening Supplier Relationships
Maintaining strong and collaborative relationships with all suppliers is crucial for the success of any business. Addendum has access to infrastructure that enables us to develop SCF programs where businesses can offer suppliers access to early payment, more working capital at more competitive rates. By signing up for these Supply Chain Finance program benefits, suppliers can improve their own cash flow, reduce reliance on expensive short-term financing, and invest in their growth and development. As a result, SCF helps build trust and loyalty be-tween buyers and suppliers, leading to enhanced collaboration, improved product quality, and increased competitiveness in the market.
Unlocking Working Capital
Working capital is the lifeblood of any business, particularly during economic downturns. SCF programs help businesses unlock trapped working capital within their supply chain, allowing them to optimise their cash conversion cycle.
Says Emuel Schoeman: “Business and finance leaders continue to be amazed by the power of Supply Chain Finance, specifically how much working capital it helps to unlock, and also by the extent that the solution is used and embraced by their suppliers.”
Addendum and its funding partners have unlocked billions of working capital by building resilient Supply Chain Finance solutions for some of the biggest industrial businesses in South Africa. This working capital optimisation strengthens the financial position of businesses and enables it to invest in critical areas such as innovation, expansion, and talent acquisition.
By extending payment terms to suppliers and providing them with early payment options, businesses (buyers) can conserve their working capital while ensuring the stability and growth of the entire supply chain.
Technology and Digitisation
At Addendum we run our programs on the award-winning PrimeRevenue SCiSup-plier platform. It is a cloud-enabled platform that creates a digital ecosystem be-tween buyers, suppliers and funders, enabling both the exchange of information about receivables and the funds flow to pay invoices.
The integration of technology and digital platforms has streamlined our clients’ SCF processes, making them more accessible, efficient, and cost-effective. Suppliers can access liquidity daily through the click of a button on Addendum’s online platform. The whole process is 100% digital, without any paperwork required at any point.
Supply Chain Finance has proven to be an extremely effective tool for South African businesses to navigate the challenging economic landscape. It offers a range of benefits from enhanced cash flow management to risk mitigation, strengthening supplier relationships, and unlocking working capital.
Addendum is Africa’s leading SCF provider and has given numerous businesses access to working capital within 24 hours, through three clicks of a button.
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