Winner: Tourvest Travel Services
Partner: Addendum Financial Technologies
South Africa’s Tourvest Travel Services (TTS) has been named winner of the Technology category for the SCF Community’s Supply Chain Finance Awards 2022. The travel management company won praise for replacing a standard industry practice of credit card payment with a sophisticated supply chain finance (SCF) programme that delivered cost savings to hundreds of small, medium and micro enterprise (SMME) suppliers and helped them survive a devastating period for tourism. The win-win solution – believed to be a first for this industry – also enabled TTS to strengthen its own gross margins and market position.
COVID-19 decimated Africa’s tourism industry. At the peak of South Africa’s 2020 lockdowns, for example, the country’s travel transaction volumes dived to less than 2% of their 2019 levels, according to Scholtz Fourie, CFO of Tourvest. TTS’s own bookings plunged temporarily on the first day of lockdown from around 11,000 a day to zero, and the downturn was even harder on the B&Bs, shuttle service providers and other SMMEs that comprise the bulk of the company’s supplier base, he noted.
The costs associated with virtual credit card (VCC) payment systems, which South Africa’s tourism industry has historically used for B2B transactions, became harder to bear in this environment. Partly due to the high number of participants in VCC systems – with card network processors, virtual card issuers and providers, and credit terminal owners all charging a fee – TTS’s suppliers had previously paid merchant fees of 1.6% to 5% to receive VCC payments from TTS. For some, payment costs absorbed over three-quarters of their net profit, according to Fourie.
This motivated TTS to take a second look at SCF – a financing solution that had proven a more difficult sell to senior management during the company’s earlier rapid growth. “When the pandemic hit it became evident that this is something that could actually help out,” Fourie said.
Following consultation with suppliers, technology provider Addendum Financial Technologies designed a programme that offers them 24-hour invoice settlement at a discount that is slightly bigger than before. However, because the associated transaction costs are so much lower, their total costs still end up 0.58 percentage points lower than via VCC. Automation also frees them from the administrative burden of inputting virtual card details to terminals.
This made switching to SCF a “no brainer” decision for suppliers, according to Emuel Schoeman, founder and managing director at Addendum. Most were pre-loaded onto the system, helping TTS onboard over 300 within the first month. One supplier reportedly told the firms that they were “immediately comfortable with Addendum’s payment mechanism – the transition was 100% seamless.”
During evaluation of Tourvest’s award entry, judges described the programme’s rapid uptake by suppliers, its focus on SMEs and entrepreneurs, and its contribution to the sustainability of the tourism industry at difficult time as admirable. “Re-evaluating their payment process in the travel industry and establishing a new, more automated system during a pandemic, while supporting local suppliers, shows [Tourvest’s] adaptability and is a testimony to their value and impact,” they added.
Tourvest benefited too. The slightly bigger discounts it achieves through the programme translate into improved gross margins, enabling it to fund critical working capital during the pandemic and strengthen its leadership position in the industry. TTS also enjoys full visibility into invoices via Addendum’s online platform, and its relationship with suppliers is stronger, according to Fourie.
Addendum also designed the program to provide a flexible funding structure for Tourvest. The company has the option of tapping bank funding lines to offer SCF to its suppliers and preserve working capital, or of using its own funds to offer dynamic discounting. As a relatively low-margin business, the ability to switch seamlessly from SCF to dynamic discounting when liquidity is higher was “really important” for Tourvest, Fourie said.
Fourie expects all 5,000 of TTS’s suppliers will eventually sign up to the SCF programme. But the company now has even bigger ambitions, and is exploring how to bring customer bookings and payments into its SCF ecosystem. “We believe in fixing things and improving, and that’s what we want to do,” he noted.