Africa's $25 billion payment problem

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Trade and payments are two sides of the same coin.

Without payments, there's no trade.

Once upon a time, we paid with cowries, shells, and pearls.

Then we moved to coins, and then bank notes.

Today, we can make digital payments.

And fintech has been in the middle of Africa’s payment story over the past two decades.

Companies like M-Pesa, Flutterwave and OnAfriq are helping everyday Africans pay for goods digitally.

B2C (business-to-consumer) payments are helping more than 222 million Africans move from physical cash to their phones for payments.

In 2023, nearly $400 billion moved digitally across the continent.

So now, it’s much easier for consumers to trade.

But what about when:

• A processed foods manufacturer needs to get raw materials from a supplier on the other side of the world?

• A Nigerian pharmaceutical distributor does business with a drug manufacturer in India?

• Or a small trucking company needs to get paid by its clients locally?

It’s not as simple as an online transfer.

Enter: Business to Business (B2B) Payments

While we hear all about B2C payments, B2B payments are the bigger side of money movement.

Five times bigger, in fact.

And because the size of transactions is larger, B2B payments are complicated.

If you’re a person trying to pay a business, you can do that in seconds.

But if you’re a business trying to get paid by other businesses… take a deep breath.

It's going to be a while until you see that money:

• Invoices take weeks to months to complete, because of slow approval and payment cycles.

• Payment channels (like paper checks and wire transfers) are slow and stressful. Some take days to settle even after approvals.

• Multiple clients/creditors owe you money at once and they’re all around the world.

For most businesses, this is a recipe for disaster. Because…

Long payment cycles = cash-starved businesses

It’s no secret that Africa's SMEs survive on razor-thin profit margins.

Many are small-scale and undercapitalized.

They count on their thin margins to pay their bills, stock up on supplies, and pay their staff.

After covering all that, they barely have any cash to fall back on.

So it's a problem when 87% of businesses globally are affected by late payments.

In South Africa, a survey of 500+ small and medium-sized businesses found that 91% felt the pinch of late payments:

• 20% struggled to pay staff

• 21% had trouble paying suppliers

• 38% would hire more staff or increase salaries if paid on time

• While 29% would invest in technology to tackle late payments

In what's called Invoice Factoring, businesses exchange their unpaid invoices for cash at a discount to stay afloat.

And in 2021, $25 billion worth of invoices were factored in Africa.

Most of it is only accessible to medium and large-sized businesses.

For the small business on the street, you could be waiting forever.

And while it's easy to ask, “Why not get some credit?”, that’s much easier said than done.

Only around 20% of African SMEs can get credit from major banks.

The banks often see them as risky and not worth their time.

So what happens when nobody can lend you money, your profits barely register and your debtors drag their feet to pay you?

If you’re lucky, you stay alive - and stay small.

But if you’re not, you bite the dust.

Which is why businesses need their money fast.

And back in 2018, this founder experienced this problem firsthand

Dickson Nsofor wanted to solve a problem he was familiar with — sending money to Africa from abroad.

He decided to build a cross-border payments startup called Kora.

It quickly gained users and he raised some money from Techstars to scale.

Until he realised: cross-border payments are tricky.

And (just like African SMEs), Kora went through it. Dickson had to:

• Deal with different payment providers on both sides

• Keep up with regulations in every transacting country

• Settle funds in record time

Only then could he take a cut off the top.

And while it was easy for them to settle payments with customers, it was hard to settle money with businesses.

Dickson had issues getting paid by his partners in different countries.

Kora had stumbled onto an even bigger problem: B2B payments.

In Dickson’s own words, “It was faster for a business to drive money from Nigeria to Ghana than to do a wire transfer”.

And by building the infrastructure of a remittance company, he had the tech to help businesses manage their payments instead of just consumers.

So, he pivoted. Instead of helping the diaspora remit money, he helped businesses track payments and get paid faster.

Today, Kora helps businesses manage payments from end to end.

Instead of managing payments by messages, word-of-mouth and pen and paper, business owners could track invoices, settlements and get paid on a dashboard.

And now Kora powers payments for thousands of businesses in Nigeria, Ghana and Kenya - to help them get paid, faster.

And they’re on a mission to help businesses:

• Get easy access to cash when they need it

• Track how much they’re owed

• Pay and get paid easily by other companies in different currencies

And business owners can focus on…

Chasing money, not chasing invoices

Kora has simplified payments for many small businesses across Africa.

African businesses can now focus on selling and growing, while Kora focuses on helping them collect, disburse, and track their payments.

Dickson, Kora’s CEO, wants to build a new standard for payments across Africa.

“What we’ve built is a seamless payment infrastructure for African businesses. And with this, we’ll finally be able to build a future without financial barriers in Africa.”

Startups like Kora use tech to help businesses get paid on time and focus on chasing paper instead of invoices.

What do you think of Africa’s $25 billion late payment problem?

Let us know here.

And if you want to digitise and manage your payments with Kora, click here.

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