How to strengthen your supply chain amidst the COVID-19 pandemic

The Covid-19 pandemic is the largest public health crisis in living memory, having forced nearly one third of the world’s population into lock-down. Governments have had to balance the need to act fast and save lives, with reducing the adverse impacts such measures will have on their economies. As a result of the pandemic, economic growth in sub-Saharan Africa is expected to decline between -2.5 and -5.1% in 2020 (from 2.4% in 2019). The region will experience its first recession in 25 years, with growth projected to recover to positive levels by 2021, although be it at levels below economic growth in 2018 and 2019. 

Businesses now have a small window of opportunity to plan for what is ahead. Having a clearly defined plan in place to deal with such an unforeseen crisis is critical to protecting the ongoing success and viability of your business. When a crisis hits, business as usual ceases! Do you have a plan to ensure the survival of your supply chain?

 The impact of Covid-19 will be felt by all, yet it is important to highlight that SMEs are likely to suffer more than others in the private sector as a result of the pandemic. The impact of SME failure for both large enterprises, as well as the country as a whole, should not be underestimated. SMEs make up 98% of all companies in South Africa. It is typical for 80% of the supply chains of large corporates to be composed of SMEs. The expected SME failure as a result of Covid-19 represents a major supply chain risk for corporate buyers. PwC 23rd Annual Global CEO Survey reported that 50% of CEOs were concerned about supply chain disruptions at the time of the survey (late 2019). Given the current economic uncertainties, this concern is expected to take centre stage, with large corporates seeking ways to strengthen their supply chains and create financing environments that promote recovery and growth. 

 Lacking in the same structures and overall robustness of larger corporates, many SMEs are expected to close their doors within the year. It is crucial to understand that the crisis will not hit SMEs all at once, but will affect them through a whole cycle of impacts from production constraints, supply chain disruptions, depressed demand, access to finance and policy uncertainty. A 2016 JPMorgan study of 600,000 small businesses reveals just how fragile SMEs are. Half of small businesses have a cash buffer of less than one month. More than 25% of these small businesses hold fewer than 13 cash buffer days in reserve. The Reserve Bank of South Africa has responded to the crisis with a 100 basis-point reduction in the prime interest rate. This should be a huge help for large corporates as they begin to rebuild, however for SMEs in the midst of the crisis, the chances of securing financing given their inherent risk remains low. 

Finvex.tech can help! Our digitally enabled platform allows corporates to create early payment programs for their supply chain. The corporate “lends” its credit risk to the small suppliers, thereby enabling these SMEs to receive immediate payment of their invoices at the cost of credit of their large corporate buyer. This practice (known as supply chain finance), geared to strengthening supply chains, has been widely adopted in Europe. Given the new reality created by Covid-19, its expansion is expected to increase even more, accelerating the post-crisis economic recovery.  

With our dynamic model (prepayment of SMEs receivables), it is possible to create healthier financial relationships between all parties involved. Unlike invoice factoring that is originated by the SME supplier, we have the corporate buyer at the center of our operation, which guarantees that the invoice to be financed is free from fraud and will be paid by the buyer without dispute. Thus, the risk assumed by the financial agent is reduced to the buyer’s credit risk- generating much lower financing costs for the small company seeking working capital. We offer a completely digitally enabled and automated platform, together with all the necessary supplier servicing requirements at no cost to the corporate buyer. The corporate is simply required to connect its accounts payable module to our platform via our proprietary API. 

Governments are deploying measures to support SMEs during these challenging times, with a strong focus on initiatives to sustain short-term liquidity. With Finvex.tech as your partner, you can ensure that your supply chain has the working capital it requires to overcome the repercussions of Covid-19.