This week I had a chance to interview Tumi Moagi, the Marketing Lead of Nvoicia. Nvoicia is an Ghanaian invoice factoring startup which helps small businesses convert their unpaid invoices into cash.
How did you get started?
Becoming an entrepreneur has been my dream since high school; however, I did not grow up in an entrepreneurial household so I was unaware of what it truly meant to own a business, let alone start one.
Nevertheless, whilst in high school I was selected to participate in a program which educated teenagers on business practices. We were tasked to navigate all aspects of business operations from production to marketing and management. This ignited my interest in business, innovating and growing concepts to generate value.
Following high school, I studied IT programming in South Africa before working as a media analyst. The company that I worked for three years went into liquidation, therefore, I decided to start my own media monitoring agency which I operated for five years.
As a result, I decided to utilize the existing relationships that I had established with industry experts to start my own company. I combined my existing knowledge of operations and the sales cycle to generate what became a fantastic first entrepreneurial experience. With fewer personal responsibilities, I had the freedom to explore and was willing to take more risks.
After running this business for several years, I felt that it was becoming stagnant and needed technological innovation for further growth. For example, I wanted to implement automation to streamline processes; however, I lacked the technical knowledge to support this. So, I decided to work for my competitor who was more advanced in this respect.
I stayed there for one year which gave me greater exposure to the technical side of business, an experience which I found invaluable. Whilst working for my competitor, I applied to the Meltwater Entrepreneurial School of Technology (MEST) in Ghana. On acceptance, I relocated from South Africa to Ghana and founded our flagship product Nvoicia which helps SMEs gain access to collateral-free working capital.
I met my co-founders at MEST and we shared a common vision, a desire to start a tech company. Throughout a series of collaborative mini-projects, I gained exposure to the tech start-up world and networked with sixty other participants. We also participated in Kosmos Energy's agriculture-focused CSR program in the Kosmos Innovation Center to acquire an understanding of the challenges facing the agricultural industry. This process brought myself, Kelvin Tyron, Ndifreke Anwananka, and Samuel Oriaku together to form a team.
Here you can read a bit about our founders:
Kelvin Tyron –Business Lead: He has a BSc. Computer Engineering and has 4+ years’ experience running start-ups & business Strategy. He is not only a talented frontend developer, but is also skilled with UI/UX & Graphic Design and product development. Twitter: @i_am_kaytyron
Itumeleng Moagi – Marketing Lead: She has gained her diploma in IT Programming and has 8+ years of experience in B2B sales, business development and marketing. Her thirst for knowledge makes her to pursue a degree in Economics from University of South Africa. She currently studies part time. Twitter: @ItuMoagi
Ndifreke Anwananka – Product Lead: He has a B.A Computer Science and Management and has hands on experience in supply chain management, digital marketing, product design and UX research. He is passionate about building products with a purpose. Twitter:@ndiloso
Samuel Oriaku – Technology Lead: He has 5+ years of experiences in software development and 3+ years in graphic design and UI. He loves to build technology-driven solutions which benefits the users.
How did you identify the problem?
At first, we aimed to start a company to conduct traceability for the agricultural sector. We sought to gain greater understanding of the process behind how goods move from farmland to the consumer and assumed that traceability was a gap in the market which needed to be filled.
However, after interviewing farmers, aggregators, and processing companies, we soon realized that no one was concerned about traceability. They were content with the system that they had developed. The real issue was a lack of finance and consequently a lack of resources. This motivated us to re-think the problem of financing and brainstorm a solution.
We could not offer pre-financing as this was a high-risk approach and also required a license which we did not possess. After careful consideration, we decided that the smartest option was to offer financing following product delivery as this was also an area which lacked funding.
For example, an aggregator which supplies another processing company must wait 30-90 days for payment. Meanwhile, they have other orders which they cannot fulfil until they have received payment for the previous order. This results in constant risk of losing business.
We realized that this was a business opportunity which we could meet through invoice factoring. Invoice factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable to a third party as a "factor" at a discounted price.
This allows for uninterrupted running of daily operations and for businesses to meet their immediate cash needs by offloading the burden of debt collection to the factor.
This is the funding model which we sought to make available to small businesses in Ghana and other countries in Africa, thus encouraging future productivity and profitability and facilitating greater expansion of operations.
What were the challenges that you faced at the beginning?
When we founded the company two years ago, one challenge we encountered was educating users on our solutions in order to gain market access.
For example, we learned the importance of using the correct terminology to attract business. At first, we used very technical language which was difficult to understand, particularly as invoice factoring is not yet widely understood in Ghana.
Most SME owners do not even record their transactions, so they lack structure and therefore the relevant data required for traditional financing. But when we came to explain the process of invoice factoring, they did not fully comprehend the concept. We realized that we needed to adapt our language to educate customers on our offering - not business or personal loans but rather bridge-financing solutions.
Furthermore, we struggled to market our services in an environment where technology has not yet penetrated daily life. The majority of our customers are non-technical and lack the capacity to upload or email invoices.
It was necessary for us to overcome this barrier which we did by maintaining a simple product without too many features. Fundraising was also challenging: whilst we had raised seed capital from MEST, this was essential for daily operations. So, we needed to approach the market and persuade benefactors to buy-in to our concept.
Who are the target customers and how does the customer journey look like?
When we first started, we targeted small businesses selling to blue-chip corporations, but we soon realized that this market was insufficiently lucrative. We therefore decided to target small business owners supplying intermediary companies who then sell to blue-chip corporations.
This allowed us to infiltrate the revenue stream of blue-chip corporations through the intermediary customers of the small businesses. Adjusting our strategy in this way to finance any small business which supplies a reputable company maximizes our likelihood of timely payment.
Currently, our marketing is minimal and the majority of our growth is generated by word of mouth. However, we have attended several events for small business owners which is a significant channel for engaging with potential clients.
Our current targeted industries are agriculture, mining, telecommunication, fashion, and hospitality (although this is not a current focus due to Covid-19).
First, we establish a relationship with a small business on a phone call in which we guide them through the process of uploading the relevant documents onto our platform. We then explain the factoring content which requires a signature.
Second, they introduce us to their customers and their history of business with them including: duration of business, number of transactions, and history of late payments. It is important for us to receive copies of offers and bank statements as proof of payments in order to assess risk.
Third, once the due diligence process is complete, we provide a factoring quote. On acceptance, we assist the small business owner to notify their customer that they have taken invoice factoring services.
The business owner then assigns the debt to Nvoicia who collects the payments. When the customer submits an invoice, we contact the business owner for validation. After verification of all documents, we begin transacting.
Most factoring companies pay in two installments: the first covers the bulk of receivables to fulfil the small businesses' need for instant cash flow. The remainder is released on receipt of the client's invoice minus a factoring fee.
We pay 80% of the invoice value to the small business owner and reserve 20% to cover delays in payment by the client. Once the full invoice has been paid by the client, we collect a 5% charge from the business owner as our fee before releasing the final balance to the small business owner.
How do you mitigate the risk?
We commenced business in January 2018 and have received full payments to date. Our only issue has been delayed payments.
We recognize the risks and are in the process of securing insurance for our invoice factoring. This requires significant data to qualify which is our current goal. Insurance companies are necessary to minimize risks: an SME will pay an insurance company 1% of their revenue to guarantee their receivables. Subsequently, if a company cannot fulfil a payment due to an unforeseen problem, the insurance company will pay up to 90% of the invoice value which covers our cost.
At present, we reduce risks by conducting thorough due diligence: requiring small business owners to provide proof of transactions with clients and favoring companies with a history of consistent payments.
Banks offer similar invoice factoring services which is of most benefit to established business owners who transact between $500K and $700K annually. However, it is a niche market and involves a complicated process to be accepted by banks.
Even with banks, some business owners are required to wait up to thirty days to have their invoices factored. So even established business owners favor our service because we are faster and more efficient in our onboarding and due diligence.
It is important to note that we do not finance these small businesses with our own capital. We source the funds from high net-worth individuals with available funds.
These individuals lodge their funds with Nvoicia and we help them manage this by using their cash to finance the small business owners using our platform. When the SME pays back, they earn 3% interest per month and we keep 2%. Currently, we have several financiers both from Ghana and internationally.
How has the Covid-19 affected your business?
Covid-19 has affected our business because small business owners are focused on retaining capital and their transactions have fallen. For instance, the agricultural sector has been influenced negatively and there is greater demand for pre-financing and project financing rather than invoice factoring.
However, the mining sector is booming and there is a higher demand for invoice factoring: we receive invoices worth slightly over $100K monthly from the mining sector.
In this respect, Covid-19 has required us to shift our focus to serve our clients’ demands. At present, we are rolling out different financing packages including distributor financing as home deliveries have increased.
In addition, we are rolling out a salary advance financing model for employers and their employees. If an employer is consistent in paying their employees’ salary, we will finance the employees in advance so that they can receive their salaries earlier. We then collect the salary from the employer later.
This model works in two ways: either we engage with employers who want us to finance salaries and then repay to us later, or employers pay us to assist them in meeting their salary obligations in advance in return for a revenue share. This early payment allows us to split the revenue as we manage the risks and disbursements. The employer uses this capital to reinvest in their business.
What is your long term vision and future funding plan?
Our first two years have been successful. We operate in a market where there is not much available data which allows us to pioneer invoice factoring, a process which is not yet widely adopted in Ghana.
For this reason, we are able to acquire more data about industries in Ghana and thus rollout additional products to best serve small businesses. The Ghanaian market is saturated with small business owners who do not have access to capital. We therefore take immense pride in being part of the solution which allows these small businesses to grow.
Our long-term vision is to become the go-to financing firm in Africa: if a bank is contemplating financing a different market, they have the opportunity to approach us and we will develop the optimum model for them to penetrate that market.
On the other hand, we want small business owners to approach us because we have tailored a specific financing model for them. As we accumulate data regarding performance and trends, we can optimize our risk analysis methodologies and provide credit intelligence to lenders.
Our team raised $100K from MEST and are looking to raise further capital in the future. Currently, we are collecting data and using it to rollout different financial models to our customers. We hope to raise $500K in the near future to accommodate pilots and scaling to other countries such as South Africa.
What advice do you offer to other female entrepreneurs?
Employees understand what is required of them and work a standard 9-5 weekly routine to fulfil those expectations. However, I have always been inquisitive and have the drive to undertake greater responsibilities and risks in order to achieve a higher reward.
My family struggles to understand my career choice and they sometimes think that I should resort to a stable 9-5 job, but they know that I aim to make a lasting impact and they support my dream of being a successful entrepreneur.
My advice for other female entrepreneurs is to go for it. Failure should only make you more determined to work harder and achieve your goals.
