Asset TV spoke with Addendum’s founders, Willem le Roux and Emuel Schoeman, to explore the company’s origins and discuss the importance of supply chain finance in South Africa today.  The founders describe how the business was established, the challenges they encountered, and the tangible ways their platform supports suppliers, particularly SMEs, in managing cash flow and achieving growth. Joanne Baynham conducted the interview.

Read the full transcript below or watch the video.

Joanne:
Welcome to Boutique Connect with me, Joanne Baynham. Today, I’m chatting to the founders of Addendum, namely Willem le Roux, co-founder and CEO, and Emuel Schoeman, Addendum co-founder and MD, and also Head of Working Capital. Welcome to you both. Today, we’re doing like a founders’ chat, like what’s it about? So, how did you guys first meet? And I’m going to start with you, Emuel. How did you meet? And what were you working on then?

Emuel:
Yeah, I spent nine years with Morgan Stanley in London, sort of in 2002 to 2012. And I decided at some point, I have to come back to South Africa, start my own business. It was always a dream of mine. And I relocated the family back to South Africa, with the idea that I will start a totally sort of unrelated business, unrelated to what we’re doing today. And I went to see a friend of mine, who was running a big private equity business at the time for one of the listed companies. And I sort of shared my idea with him. And I said, this is really my passion. This is what I want to do. And I never really wanted to build it out by myself. Like, I believe in intrapreneurship, not intrapreneurship. And I asked him, you know, is there a business in that stable, that would be ideal to build out this idea of mine. And he immediately said, listen, he’s going to connect me to Willem. Very intelligent. I think his words were very focused guy, very intelligent. And he and that business at the time, had a big appetite to build out new stuff. So he ultimately connected me to Willem. And we started talking about my idea, which then eventually evolved into something else.

Joanne:
So Willem, I’m not sure from your For us, the timing was perfect. So you were South African based?

Willlem:
I was South African based. We had a business that was doing financing in the retail market. And we had kind of reached the end of our runway. The business was stable and profitable, but there wasn’t a lot of scope for growth. So we were looking for something to do. We didn’t have the biggest balance sheet. We couldn’t tackle the banks on mortgages or something like that, where you need huge departments and sales forces and balance sheets. We were looking to do something where you could leverage our own skills, which was being flexible, being nimble, being tech-savvy. But we weren’t sure exactly how to tackle the market. And we didn’t have the manpower to do it too. So Emuel was the right man at the right time for us. We were initially focused on the FX market. We thought we were going to do something there. That’s where his expertise were. But we always knew it was regulatory challenging. So we had a second idea in the pipeline, something we had already been investigating before Emuel joined us. And he then ran with both projects simultaneously. He investigated both the FX opportunity as well as the working capital opportunity. And when FX proved very difficult to do because of the regulatory environment, we decided to pursue the working capital opportunity.

Joanne:
Okay, so that’s what we’re talking about today is working capital, right? So tell us more about why what you do works in South Africa. So I’ll kick off with you. I mean, it was your kind of your collective brainchild. Okay. But why do you think it’ll work? And why do you think and is why is it working in South Africa?

Emuel:
Yeah, I think at the time, supply chain finance was brand new in South Africa. So we thought there was a real opportunity at the time. And obviously, it proved right over time. I think the main challenge for most businesses is working capital. So if you think about working capital, it consists of three parts. It’s basically your inventory that you have to hold if you’re a amount of time for your clients to pay, right? So that’s your debtors. So those two things are working capital negative. And then obviously, you also need to pay your creditors. So that’s sort of working capital positive, depending on how long you take to pay your creditors. So for every single business in South Africa, it’s a major challenge, they need to fund this working capital in some way, right? Now, most businesses will go to their bank, it’s quite a long process, you need paperwork. If you have enough history, they might give you a line of credit. It’s often expensive, especially if you’re a small sort of SME, it’s quite expensive. But often, companies also need to give personal surety, right for these loans, etc. So this is where supply chain finance makes a huge difference to clients in South Africa, because the process starts with your client. So instead of you going to a bank and presenting your invoice from your client for funding, your client will pre-approve your invoice onto our Fundec platform. So it’s as simple as username, password, you log into our platform, you can see that your invoice is approved for payment, let’s say 30, 60 or 90 days into the future. And the supplier can then simply click a button, receive payment, next business day directly into their bank account. And Willem and I immediately saw the huge potential in this in South Africa, because at the time very, very few businesses actually had supply chain finance. And it was really our job, firstly, to go out there in the market, really educate companies about supply chain finance and the huge benefits that this offers to their suppliers. Secondly, the potential benefits that they could get from it, I think that was very important. But it was also quite difficult for us to get the banks on board, because the banks, you know, typically they’re firstly a little bit sceptical if you’re a new business. Secondly, they always think how they can do stuff themselves, of course, because, I mean, banks offer lots of products. So we had to convince them to become part of a, call it a multi-bank solution, where we have multiple banks on funding the supply chain finance programmes. So it was a very interesting and quite a long and challenging journey for us, especially in the beginning.

Joanne:
So how long have you two been in business for? You said 2012, I think is the number you’d said you were still in the States.

Willlem:
We started out, we signed our platform agreement to licence the technology that we’re still deploying in March 2014. So that’s probably the official birth date of our business. But Emuel joined us a good few months before then, because we needed to do the investigation and negotiate with potential partners.

Joanne:
Okay, so you’ve been in business like 11 years? 11 years, yeah. Okay. And the teething problems must have been pretty hectic in the beginning, is it?

Emuel:
It took us more than a year to sign up the first client, of course, because we needed the banks on, we needed to convince a large line to start sending their supplier invoices to the platform. And then of course, we needed to onboard the suppliers themselves. So that first year was, I can remember Willem and I, we fly out of Cape Town six o’clock in the morning and return 10 o’clock the next evening and have 20 meetings in between just trying to convince banks and clients. So there was… there was a lot of hard work that went in.

Joanne:
But are you over the hump now? Do you think, can you see it’s getting better and better all the time, Willem?

Willlem:
It’s a good business for us. So we didn’t take a complete flyer.

Joanne:
No, no, I’m not saying that, but like all embryonic businesses take some time to get to there. You have an idea, you put it on paper, the two of you meet, there’s a chemistry. Just how long, I mean, are you at that point now, you go, I can see the trees, you’re well past that.

Willlem:
I think it took us about three or four years to get to the point where you could see it’s going to work. The first customer was a good customer for us. It was still one of our biggest customers. So we were lucky with our first customers. It was ArcelorMittal, which is not a business, it’s a happy business at the moment, but they were very, very good and remain a very good customer of ours. And I think we deliver specific value to their suppliers because their suppliers are worried about the solvency of the ArcelorMittal business. It’s well known that ArcelorMittal is having financial challenges and their suppliers can cash out of their ArcelorMittal position very quickly in our platform. So it’s been a good customer of ours. The question for us is, can we sign up anybody else? And once we signed up a few more biggish businesses like ArcelorMittal as clients, we knew this business could work. It could see it’s profitable. We just need to grow.

Joanne:
So I noticed on your website, Pick and Pay is one of your clients. Now, I remember distinctly when I was studying long, long time ago, Pick and Pay was always the poster child for the perfect working capital management. Raymond Ackerman was famous for, you know, sweating his working capital. And yet they’re one of your clients. And I don’t think you can get a much bigger compliment than that because you studied this at Varsity, so they’re perfect. Tell me about some more of your clients that have been incredibly happy with your and the process you’re using and the platforms.

Willlem:
We’ve got clients across the whole economy. So we go right from basic minerals and agriculture to retailers at the other end with manufacturers and chemical companies and everything else in between. So we deliver value for everybody. As soon as there’s a relationship between a buyer and a supplier and that relationship involves payment terms, we have become very good over the years at optimising that relationship. And it’s a win-win. It’s not like we help one party exploit the other one. Both parties join very willingly. Nobody is forced to do anything. It’s a negotiation like any other transaction is negotiated between two parties. And they typically find that with the introduction of supply chain finance, they are able to find a new point where payment terms make sense for both. And that involves earlier payment for the supplier because the system allows them to cash out the invoice as soon as it’s approved by its buyer and slightly longer terms for the buyer, which improves their working capital. So we’ve kind of changed the dynamic of the negotiation between buyers and suppliers, but we think it’s for the positive.

Joanne:
Okay, so I can see the buyers and sellers are both happy here in what you’re describing. How do you guys make money out of it? Or is that not something you want to discuss? Is that something when somebody sits in front of you, you discuss how you’re paid?

Willlem:
It’s no secret. We make money when our customers make money. So whenever they transact, we take a transaction fee. It’s a transaction fee business model. So only when they transact do we get paid. It means only when they find value do we find value. We don’t charge implementation fees or monthly maintenance fees or anything like that. And it works for the whole market.

Joanne:
And I suppose this is, I mean, let’s be honest. The SME market is where most of jobs in any economy are created. And to your point earlier, working capital takes a lot of that capital away to build businesses. Are you speaking to government about how you can be improved on this? Because this to me sounds like a no-brainer in terms of small companies struggling. Let’s get your working capital working better for you with guys like yourselves. Is government at all involved? Are you chatting to government?

Emuel:
Yeah, it is our dream obviously to have this ultimately with every single large entity in South Africa. Private entities, SOEs and government ultimately. I think we are finding it a lot more challenging to get government over the line. I think they have many other priorities potentially. But we recently, for example, attended the Western Cape government conference where there was lots of municipalities and provincial departments there. So we are having those discussions, but we don’t have a live programme there yet.

Joanne:
It just seems like, you know, let’s face it, SMEs create jobs. Yeah, for sure. And this is quite, you can have a great idea as an entrepreneur, but have no idea about the cash flow consequences of your great idea using your platform. I mean, I guess also it must help with fraud, doesn’t it?

Willlem:
That’s one of the reasons it works well in this country. I mean, this is not the idea that we invented. It’s something that was working in Western Europe and the US already long before we brought it to South Africa. But the elimination of fraud risk, the fact that you’re connecting the bank directly to the purchaser of the goods and services and it’s pre-verified. That’s the first thing I’m thinking forward. It’s pre-verified. There’s no fraud risk unless our platform gets hacked. And it’s a very well-built and well-protected platform. That’s not easy to do. So we think there’s benefits everywhere. You can’t really legislate for this type of thing because in the end there’s also a credit risk element. Somebody picks up that credit risk from the supplier. And if a bank’s not willing to pick up that credit risk, if the counterpart, the buyer of the goods and services is not creditworthy, you can’t really try and force them to offer, to pay early.

Joanne:
So we would love government to mandate that supply chain finance should be the standard throughout the economy. No, I’m more saying like have programmes in place to discuss these platforms, that this facility is there for people who don’t know about what you do. I mean, when you use fintech and financing and everyone kind of goes, their heads explode. Like this gets really scary stuff. But it could create, it can change the way a business runs.

Emuel:
You know, we sometimes joke, and our marketing person won’t necessarily like this, that we’re the biggest facilitator of finance in South Africa that nobody’s ever heard of. To give you an idea, I think we’ve now funded close to 400 billion rand in South Africa. And the vast majority of that is actually for the benefit of SMEs in terms of number of trades. And I would say the vast, vast majority of that was done at a subprime rate for SMEs, which is just not something that they get. So it is always a challenge for us to get out there, get our names out there, get the concept across. But there’s massive scope to expand this, of course.

Willlem:
Yeah, I agree. I don’t think we need government to do anything for us. We’re pretty well able to market our services ourselves.

Joanne:
Oh, no, I wasn’t saying that. It just occurred to me that this would be a fantastic thing that government should be involved in. Yeah, it’s a positive thing. It’s clearly enough in the private realm for you guys to keep very busy. Yes, yes. But I just immediately, I mean, to me, the biggest problem in South Africa today is the lack of jobs. And if companies can feel that they can actually hire people, working capital works, these are all important facets. So keep doing it, guys. I said 400 billion, you said. That’s pretty impressive.

Willlem:
Of course, it’s only out for a few days or a few months. It’s not out forever, but it’s big money.

Emuel:
Yeah, I think on every… Our invoices are out for close to 60 days, so that’s about the average invoice tenor. But the extra 60 days of working capital, that injection, enormous amount of working capital into the economy. I’ll give you a good anecdote from one supplier. We implemented a solution for one of the big apparel JSE-listed companies, and one of their suppliers needed working capital to build a new factory line so that they can produce more t-shirts for this apparel company. They simply cashed in all the invoices, used the money, built a whole new line, and they employed an additional 70 people. So that’s exactly the sort of good news story that you want to be able to tell.

Joanne:
We need good news stories at the moment. Gentlemen, we’ve run out of time, but thank you very much. And hopefully, you won’t be the news that no one knows about going forward. Thank you very much.

Willem and Emuel:
Thank you Joanne