Can Business Payments in Africa be Digitized?
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Can Business Payments in Africa be Digitized?

Products and services becoming digitalized has taken centre stage in Africa. In that light, we’ve recorded significant progress but we however cannot say the same for business processes.

Processes like payment options may be experiencing a slower progress rate on the other hand.

Entrepreneurs and investors especially in the fintech world have shifted their priorities from overnight, record breaking growth to hitting profit and digging out the treasures buried in the fintech ecosystem.

It will take a little more than luck for business to crack the code on how to expertly manage invoicing and everything money related. This is because businesses pay businesses to stay afloat.

Globally, a lot of B2B payments happen offline in banking halls between businesses scattered all over the world—sometimes in cash. US fintech-focused investment banking firm, FT Partners, puts the value of B2B payments in the US at a whopping $29 trillion—including payments from large corporations.

It is generally accepted that globally, more than $120 trillion moves between businesses each year. 

To bring the conversation closer to home, a 2016 World Bank report suggests that excluding large corporates, micro, small, and medium retailers (MSMRs) in sub-Saharan Africa paid their suppliers as much as $1.5 trillion in 2015. These businesses and retailers are a non-trivial percent of Africa’s entrepreneurial pool and, despite recurring economic setbacks, continue to serve as the mainstay of economic growth.

B2B payments have remained stuck in time because the difficulty lies more with the administrative part of it than it is actually making a payment.

To pay for what’s in your Amazon cart, you simply checkout with your credit or debit card. A B2B payment transaction starts from the point where a purchase order is initiated. Then a back-and-forth ensues between vendor and business to settle payment terms. As there is no definite payment flow which all businesses follow, each business has different payment rules and admin processes related to it, and this is unique to every business.

Furthermore, B2B payments are push payments, meaning the payer has to remember to send the money as opposed to the receiver being in control of collecting funds (pull payments), as is the case with consumer payments.

The friction, costs, and potential for mistakes and fraud associated with B2B payments combine to affect the cash flow of businesses. A Quickbooks survey of 3,500 businesses in 6 countries last year reported that 23% of small businesses receive payments late. When suppliers and vendors are not paid on time, they have to find capital from other sources to meet their business obligations. Where they cannot find the money, the business may die.

On the other hand, while some of the problems with B2B payments can be resolved by streamlining payment terms, getting businesses to use one-size-fits-all payment terms is a near impossibility. Because, among other reasons, businesses, like vendors, also have to manage cash flow.

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Getting businesses to adopt uniform payment processes is not exactly feasible seeing that business payments is a largely diverse space. So B2B paytechs tend to build solutions for specific use cases in accounts payable, accounts receivable, bookkeeping, treasury, and taxes. But there’s a catch. Building fragmented pieces like this may end up making the entire payment process too much of a pain. At the same time, while you may reasonably customise solutions for the 400 African firms generating revenues in excess of $1 billion, or the 700 who earn $500 million per year, you cannot exactly build a particular, unique solution for every one of sub-Saharan Africa’s 44 million MSMEs. 

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