Business-to-business (B2B) payments have surged in the wake of the pandemic — a 10% year-over-year growth, according to data from McKinsey.
B2B payments remain a challenge for many small and medium-sized enterprises (SMEs) in emerging markets like Africa given the high cost of invoice processing – around $16 per invoice processed – and like many local businesses still traditionally manual and time-consuming reconciliation of incoming payments with billing information.
According to John Kiptum, CEO of Kenyan fintech startup Churpy, these challenges eventually create a negative chain reaction that further complicates the process for these companies.
“There’s an impact on customer satisfaction, service delivery and the increase in bad debts because you don’t adequately track who owes you and who doesn’t,” Kiptum said in an interview with PYMNTS. “Also, you set aside quite a lot of money for each invoice, because as an accountant you don’t have time.”
The fact that companies often decide on loan terms, accept invoices and partially pay them back within 60 or 90 days adds another layer of complexity to the manual reconciliation process.
“So you have an account with three or four different banks, from different ones [payment] Channels. You can imagine what that does to an accountant who has to repeat that for, say, 1,000 or 2,000 invoices,” he explained.
The problem is industry-agnostic and affects all industries, Kiptum added, whether they are manufacturing, retail or technology-focused companies, all of which are looking for an innovative solution to bridge this gap.
It’s this gap that the fintech firm is trying to fill with its artificial intelligence (AI) software-as-a-service (SaaS) product for accounts receivable automation, an area where, according to Kiptum, there are very few solutions for today company gives. Local businesses can now seamlessly reconcile their books and make payments on outstanding invoices directly from their platform.
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To easily match invoices with incoming payments, the startup has also connected to some of the region’s largest banks — Citibank, Standard Chartered, NCBA, and ABSA — via application programming interfaces (APIs). This gives its business customers access to real-time statements and transactional data pulled into the Churpy platform from more than 20 enterprise resource planning systems (ERPs), including SAP, Microsoft Dynamics and Quickbooks.
“That’s why onboarding is so seamless, because if you’re a Citibank customer and you’re using Quickbooks, there’s literally nothing to do,” he noted. “We’re talking about the connection to ERP, the connection to your bank, reading in the invoice data and the annual financial statements, reconciliation and then sending the reconciled entries back directly to the ERP.”
Founded in April 2021, the Nairobi-based start-up today aims to expand beyond its home territory, using recently raised $1 million in seed funding to establish offices in Nigeria, South Africa and Egypt.
Working capital financing
The Africa-focused fintech is also looking for a financing product for its clients to fill the huge gap in SMEs’ working capital financing needs – estimated by the World Bank at about $340 billion across Africa, Kiptum said.
“It’s a problem that requires a complete change in the way financing products work [designed]and the last person you ever want to rely on to solve that problem is a bank because they’re extremely traditional, extremely risk-averse and very paper-based about the way they run their business,” noted he.
It can also be a challenge for SMEs to provide the documents required by banks to process their loan requests – multi-year financial statements or proof of delivery in the form of an invoice or purchase order. Additionally, Kiptum said small businesses don’t always have the collateral, be it a title document for land or assets, to support their applications, further complicating their access to credit.
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To fill this gap, the company is working with large companies and corporations to set up a trade finance program that can support SMEs, for example with a 90-day advance loan.
“[Churpy] only goes to one place – my customers – and if they can guarantee I’ll get paid in 90 days, then I’ll pass that money on to the SME because I know I’ll get reimbursed in the future,” he said.
Because Churpy is connected to both the ERP and the bank, Kiptum said it will be able to easily validate invoices and verify that they are from a customer who has been with Company X in the last five years had to do, eliminating any risk of fraud.
Overall, the aim is to simplify the credit process by completely excluding SMEs from the application process.
Kiptum said the FinTech sees huge potential for business growth in meeting this “urgent” need for working capital funding: “The growth product for us is very much about working capital funding – it’s such a big gap and no one has figured out how yet.” to scale this up quickly.”