South African startup Imafin, which offers commercial credit solutions aimed at removing credit risk, is eyeing eventual expansion across Africa on the back of its partnership with Diners Club International.
Launched in 2013 by co-founders Thabo Mongoma and Nivan Bijou, the Johannesburg-based Imafin helps suppliers and customers focus on their core business by removing credit risk in their procurement transactions, converting credit sales into instant cash and extending payment terms.
The startup essentially “buys” an invoice by offering a loan against it, which it does through its partnership with Diners Club International, a subsidiary of Standard Bank Africa. This allows Imafin to offer terms much cheaper than more traditional factoring options.
“The current commercial credit business-to-business sales process places a heavy burden on the supplier. The supplier’s customer typically places an order and receives stock immediately, while the supplier gets paid only 30 days later. This burdens the supplier with debt, cash flow challenges, credit risk and the cost of credit management,” Mongoma told Disrupt Africa.
Imafin, which was one of four startups to walk away with ZAR1 million (US$69,000) in funding from Merrill Lynch South Africa at a pitching event hosted by Johannesburg-based fintech hub AlphaCode earlier this month, has three offerings designed to fix these problems.
Its standard offering sees Diners Club grant credit to the supplier’s customer for exclusive purchase at the supplier. Customers place orders with the supplier as normal, with fulfilled orders settled within 24 hours to the supplier by Imafin. Customers then have up to 60 days interest free to settle with Diners Club.
Imafin’s procurement offering, meanwhile, involves Diners Club granting credit to the supplier for exclusive procurement purposes at its vendors. The supplier pays for stock in full on delivery, while Diners Club credit is then payable within 60 days, interest free. Its third, comprehensive offering is a combination of the two.
Mongoma said the benefits include the 24 hour payment to suppliers, which ensure better cash flow management, as well as the removal of credit risk, debt collection and associated costs. Companies can also attract new customers through extended payment terms.
“Generally suppliers provide goods and services to their corporate customers on 30 day credit terms,” he said. “During this time, suppliers are out of pocket and run the risk of default by customers when the 30th day arrives. Thus, suppliers prefer immediate payment on delivery of goods and services. The reality however, is that customers want longer payment days.”
Imafin was launched to solve this problem of immediate payment versus delayed settlement.
“Through our online-based commercial credit product, we close this gap by settling supplier invoices immediately and allow the customer to pay us back in up to 60 days,” Mongoma said.
“The supplier is paid 100 per cent of the invoice and we levy a small fee, generally under two per cent per 60 days, to the customer for the benefit of the extended settlement period. In short, we convert credit sales into cash and extend payment terms for the customer.”
Technically, Imafin is in competition with commercial loan companies and banks, but Mongoma said there are important differences. The startup’s offering is online, and thus available 24 hours a day.
“Once you are approved you can use the facility at any time that suits your business, and on an ongoing basis. You only apply once and the facility is available to you indefinitely,” he said.
Fees are also lower than those offered by banks or other lending institutions. Though Mongoma said uptake was initially slow, there had been encouraging interest. Imafin’s diverse client base now includes petrochemical firms such as Engen, Shell and Total, government agencies and related organisations such as the City of Cape Town and the Johannesburg Roads Agency, and financial services such as BankservAfrica and Momentum.
The funding from Merrill Lynch will assist the previously self-funded startup in accessing a greater customer base through an integrated marketing communications programme and an increased sales team, as well as enhancing its payment platform.
Mongoma said though the company is focused on establishing itself in South Africa for now, it does have expansion ambitions.
“We are currently squarely focused on the South African market, although our licence with Diners Club International enables us to participate in other Africa markets. We would certainly look to expand beyond borders, as our online-based payment platform caters for that. But for now we wish to entrench ourselves at home,” he said.
Ensuring greater uptake will be key to success. Due to the fact Imafin accesses an extremely low cost of credit from its partners, and passes it on to its customers at what Mongoma calls “highly competitive rates”, the margins are small.
“Therefore, we pool large volumes to achieve a reasonable return,” he said.
The partnership with Diners Club will be crucial to ensuring even higher volumes, with Mongoma saying the startup has benefitted from this association in other ways as well.
“Compliance in the financial sector is a challenge, particularly for a new incumbent. We were fortunate to carve out a relationship with Diners Club, as they assisted a great deal in overcoming regulatory-related hurdles,” he said.
With initial issues now overcome, Imafin is looking to build its user base and expand its product offering. Within the next two years it plans to build a fully operational mobile-based platform, which Mongoma said is key for the delivery of materials.
“For example, one of our clients in the gas industry supplies large gas canisters to the catering and restaurant industries,” he said. “Through the app, when the truck drops off the gas, the driver will easily open the app and press the “delivered” button. That press of a button will instantly release payment into the supplier’s account.”
Imafin also plans to establish regional sales teams in Western Cape and KwaZulu-Natal.
“We currently operate from Johannesburg and the travel between here and other provinces is costly. Above all, regional presence ensures better customer service to our customers based in non-Johannesburg locations.”
