Factoring Articles

Five SME finance tips for 2018


Five SME finance tips for 2018 Is sound cash flow management high on your organisation’s agenda for next year? Here are five top tips for keeping your business finances healthy during 2018 and beyond.

1. Revise the credit terms on your sales

Your customers are in the same boat as you, looking to keep cash in their businesses for as long as possible. It’s likely that your customers have asked (or simply expect) you to wait 30, 60, 90 or even 120 days after invoice date before they pay these accounts.

Of course, you may have to offer them these generous credit sales terms to maintain a competitive advantage. But if your customers are willing to pay within 30 days or less, you’ll be in a much better cash position. Why not set up a few meetings this side of the year (or early next year) to discuss your credit sales terms for 2018?

2. Negotiate more favourable payment terms with your suppliers as well

Another way to keep cash in your business for longer is to lengthen your payment terms with your suppliers. If you’ve invested time and energy building strong working relationships with your suppliers, you’ll be in a better position to broach the subject. And make sure to kick-off this negotiation well in advance. Don’t ask when you really need the cash. Rather give your suppliers time to think about it without putting too much pressure on them.

3. Prepare for unexpected expenses

Do you have a clear strategy in mind for weathering unforeseen expenses without running out of working capital? Should business-critical equipment break down or bad weather damage your stock, how would you pay your suppliers, never mind your salaries? Maintaining a healthy cashflow is the smartest way to prepare for the unknown and keep your business running optimally come what may (within reason, of course). But how do you achieve this?

4. Review your business finance strategy

If you need working capital to invest in new equipment or technology, take advantage of a once-in-a-lifetime business opportunity, or survive a cash flow crunch – what funding avenues would you explore?

Many companies approach the big banks as their first port of call because they’re simply not aware or familiar with the other options available to them. However, there’s a faster and more flexible solution for small and growing businesses – known as factoring. This is a financial strategy used by a wide range of businesses around the world, from SMEs to large corporations. With factoring, you sell your accounts receivable to a factoring company, in exchange for a percentage of the cash that’s owing on the invoices. The factoring team takes over the responsibility of collecting payments directly from your customers.

Once the factor receives payment from a customer in accordance with your invoice terms, your business receives the balance owing on the invoice minus an agreed fee. The beauty of factoring is that it frees up working capital without you having to compromise equity or control. The factoring facility also grows with your business, because it is based on your accounts receivable (and not capped like a loan or overdraft).

5. Call in expert support when you need it

The administration of your credit sales ledger can be a time-consuming process, especially if you – as the business owner – must handle this role personally due to limited resources. So how do you avoid wasting time on credit control processes and invoice collections that could be better spent growing your business? And how do you be sure that your credit checks and payment controls are being handled in the best possible way? With a factoring solution, all these tasks are taken care of!

Choose Merchant Factors as your factoring partner and a team of trained credit control professionals will handle everything from opening new debtors' accounts and performing world-class credit checks, to following up payments and assisting in the settling of disputed accounts. All these services are carried out transparently, in close consultation with you – as part of the factoring agreement.

Why Merchant Factors?

Merchant Factors was founded in 1988 to offer growing businesses an alternative to traditional bank loans. Since then, the firm has successfully assisted over 2000 businesses in reaching their financial dreams.

As the only truly independent debtor finance institution in South Africa, Merchant Factors is not only flexible, but also fast – offering the shortest turnaround time in the industry from application to pay-out.

Ready to join 2000+ businesses, who are achieving their financial goals through factoring? For fast, flexible finance – contact Merchant Factors today

Finance beyond the Numbers.

Survive and Thrive Successfully: Advice for Seasonal Businesses


Survive and Thrive Successfully: Advice for Seasonal Businesses Many businesses experience seasonal peaks and troughs in demand. These types of organisations face multiple challenges. Not only do they need to survive during slow seasons, but they must also find ways to thrive during periods of increased demand by capitalising on revenue opportunities without putting cash flow or long-term success at risk.

Do you own or manage a seasonal business? How do you make hay while the sun shines and batten down the hatches when the cold weather creeps in (or vice versa)?

Here are some recommendations.

1. Human capital

You don’t want to lose the skills and expertise that make your products and solutions such a success. This would mean a mad scramble to hire and train staff in time for each busy period. So, how do you make sure that you have enough people to drive peak productivity during high seasons, as well as hold onto your valued talent during low seasons?

Firstly, be transparent and keep your valued staff informed about your seasonal business cycles. Encourage them to take leave during the quieter months (rather than everyone going on holiday over the festive season, for example, if this is your busiest time of year).

Secondly, consider maintaining a core team of highly-experienced staff and then hiring seasonal employees as and when these are needed. Several recruitment agencies offer managed staffing options that build more flexibility into your workforce. Or you could hire students over the summer, or highly-skilled retirees who are happy to work more flexibly.

Whatever route you choose, take care not to hire too many people, as you don’t want your labour expenses to eat into your profits during high seasons.

2. Working capital

Smart cash flow management is critical for seasonal businesses. In an ideal world, you would be able to time your cash inflows and outflows perfectly to match your sales cycles. While you can anticipate the periods in which you will earn the most revenue (based on the nature of your products, your customers’ needs and past sales), you can’t always control when your customers will pay.

Also, while revenues fluctuate, you’ll still have your fixed expenses such as rent, electricity and more. Your cash flow therefore needs to be reliable enough to weather fluctuations in demand, and meet your daily running costs.

Having access to the right working capital finance can be extremely helpful in addressing these challenges. If you sell to your customers on credit terms of between 30 and 120 days, you should consider factoring to keep cash flowing into your business. Factoring is a finance solution that involves selling your accounts receivable to a factoring company. This firm then provides you with the working capital you need to keep your business running efficiently and successfully.

If you choose to partner with Merchant Factors , its expert team of professionals will also handle your debtor administration and credit control functions. This means that you can delegate a wide range of tasks to the Merchant Factors team, which saves you from having to hire this expertise in-house.

Services include sending monthly statements, phoning debtors for payments due, sending reminders and final demands, and handling receipting and reconciliations.

3. Capitalising on sales opportunities

Keeping the optimum level of stock in your business to meet demand yet keep costs under control is a typical challenge for seasonal businesses. Too much stock in your warehouse can put a strain on your cash flow, but you also don’t want to be caught without enough stock to capitalise on seasonal spikes in demand.

With a stock finance facility in place, you’ll have working capital available to pay your suppliers early to ensure you have your stock in time. You’ll also be in a better position to negotiate early payment discounts, which keeps more cash in your business.

Stock (or trade) finance is a funding mechanism that is specially designed to assist in the purchase of stock. This is an asset-backed facility that funds the operational cycle – from when you pay suppliers until you receive funds from customers.

A stock finance facility from Merchant Factors is carefully tailored to match your company's cash flow cycle, to prevent your organisation from overtrading. And repayment dates are based on the working capital cycle, allowing the business enough time to produce the goods, sell them, and collect the cash from the sale (or through the debtor created as a result of the sale).

This enables you to increase sales and profits during peak seasons, or develop new product lines to diversify your revenue streams. As mentioned, you’ll also be able to access purchase discounts through the early or prompt payment of suppliers, as well as purchasing advantages by being able to buy in larger quantities.

Ready to survive and thrive as a seasonal business? contact Merchant Factors today for more advice and information on agile factoring and stock finance solutions.

Finance beyond the Numbers.

Factoring: a popular form of business financing globally


Factoring: a popular form of business financing globally Factoring is a financial service leveraged by businesses around the globe to maintain healthy cash flows, fund growth cycles and save time in the back office.

Under a factoring agreement, a business sells its accounts receivable to a third party, known as a factoring company, to boost its working capital. But it doesn’t end there. Partnering with a trusted and expert factoring company is like having an entire debtor administration and credit control team working for the business, because the factoring firm handles these functions, freeing up the business owner and administrative team to focus on other areas of their roles.

According to FCI, the global representative factoring network and association with members in more than 90 countries, “Factoring is a complete financial package that combines working capital financing, credit risk protection, accounts receivable book-keeping and collection services.”

All these services combine to support stability and growth in many economic sectors, especially among small and medium enterprises (SMEs).

The state of factoring globally

Research by the FCI reveals that factoring volume reached over EUR 2.35 trillion in 2016. While this is slightly down from EUR 2.37bn in 2015, deputy secretary general at FCI Erik Timmermans explains that factoring is still growing in popularity in most regions of the world:

“Banks have been shifting SME lending from non-secured lending into receivables finance and factoring. Factoring is also moving up from SMEs to larger corporates who have discovered this as a stable form of financing.”

The FCI notes that the decline in overall factoring volumes was largely due to significantly lower demand in China and the volatility of the British pound. Many other regions saw factoring volumes continue to increase, echoing the steady growth trend that the global factoring market has seen for the past two decades – expanding 9% annually on a CAGR basis. Factoring volumes rose by 2.5% in Europe, 9.4% in the Americas and 14.1% in Australia, for example.

What about Africa?

Closer to home, Africa saw a dramatic increase in factoring volumes during 2016, reaching a total of EUR 27.6 billion factored on the continent. This represents a 47.6% year-on-year growth. South Africa is the largest factoring market in Africa, accounting for 85% of the region’s factoring volumes.

What drives demand for factoring services?

In the wake of the global financial crisis and at a time when economic conditions are seeing many banks tightening their lending, factoring provides a stable and accessible form of alternative business financing.

Add to this the fact that most factoring firms provide businesses with robust credit-risk protection services, and it’s no surprise that the demand for factoring solutions is expanding rapidly in South Africa and many other regions around the world.

Keen to find out more about factoring?

Merchant Factors is the leading independent factoring company in South Africa. Established in 1988 to offer local businesses an alternative to traditional bank loans and overdraft facilities, Merchant Factors specialises in local and cross-border finance – customising its facilities to suit the unique business needs and operational cycles of its diverse clients.

Another advantage of being an independent financial services provider, is that Merchant Factors can offer the shortest turnaround from application to pay-out in the industry.

Ready to join 2000+ businesses, who are achieving their financial goals through factoring? For fast, flexible finance – contact Merchant Factors today

Finance beyond the Numbers.

Sources:
https://fci.nl/en/news/global-factoring-volume-reaches-all-time-high-2015/3677
https://fci.nl/downloads/Annual%20Review%20%202017.pdf

5 tips for managing your accounts receivable successfully


5 tips for managing your accounts receivable successfully For a small or medium sized business, cash flow is critical. The client base may be growing. Sales may be up. But if accounts receivable are not managed in a sound and structured way, there simply won’t be enough capital to run the business effectively.

If a business sells to customers on credit terms – in other words, if invoices are not payable immediately, but rather within 30, 60, 90 or even 120 days – it’s essential to have a robust invoice collections system in place. This helps to keep close tabs on receivables, maintain a steady cash flow, and hopefully reduce the risk of late payments and bad debt.

Do these issues apply to your business? Here are five tips for ensuring effective invoice collections and protecting your cash flow.

1. Do a credit check before you extend credit

In an ideal world, all customers would pay for your products or services upon delivery. However, many customers push for credit terms, which means you wait days or even months for the cash that’s owing to your business.

Don’t forget that credit is a privilege and should only be granted to customers who are creditworthy. It’s essential to perform credit checks on all customers before agreeing on your credit sales terms.

2. Follow up with a customer satisfaction call

A few days after delivering your goods or services, follow up with a friendly phone call. Ask whether your customer is satisfied with the goods and/or level of service provided. This will not only help you to continue improving the customer experience, but also ensure that you don’t have an unhappy customer on your hands, who may be reluctant to pay your bill.

If concerns or complaints are raised, deal with these immediately. And before you end the conversation, check whether your customer has received your invoice and reinforce its due date.

3. Keep track of accounts receivable and react swiftly if they’re overdue

Put a system in place that alerts you when payments are due. This way, you’ll know immediately when a payment date has been missed, so you can swiftly send a friendly reminder. Include a duplicate invoice and a gently request whether your customer simply forgot to pay, or lost the bill.

If you have still not been paid within a working week, send another friendly reminder that the account is overdue. And follow this up with a phone call to find out if there’s a reason for the late payment. Get your client to commit to a payment date, in writing.

4. Collection letters

    If another working week passes without payment, it’s now time to send a formal collection letter that:
  • Confirms what was discussed in previous emails and phone calls
  • Demands immediate payment
  • Communicates the consequences of non-payment (for example, you could suspend the customer’s credit privileges)

Be sure to send collection letters, and any further correspondence, via registered mail so you have a record that it was received.

5. Consider professional support

Instead of working your way through these resource-consuming steps, you could rather consider partnering with an expert factoring company from the very beginning.

When you enter a factoring agreement, you sell your accounts receivable to a factoring firm, which provides you with the working capital you need to keep your business running optimally.

If you choose to partner with Merchant Factors, our professional team will also handle your debtor administration and credit control. This means that you can focus on winning new business, while our experts:

  • Carry out thorough credit checks on your customers
  • Send monthly statements
  • Phone debtors for payments due
  • Manage reminders and final demands
  • Handle receipting and reconciliations
  • Provide guidance if it becomes necessary to institute legal action

You’ll not only maintain a healthy cash position, but also avoid the headache of managing your debtors book and credit control functions internally.

Improve your cash flow now

Merchant Factors was founded in 1988 to offer businesses of all sizes an alternative to traditional bank loans and overdraft facilities. Specialising in local and cross-border finance, this fully independent financial institution offers tailor-made facilities to suit the unique business needs and operational cycles. Merchant Factors is also able to offer the shortest turnaround from application to pay-out in the industry.

Since its inception, Merchant Factors has successfully helped over 2,000 growing organisations to meet their financial goals.

Chat to us about your business goals. For fast, flexible finance – contact Merchant Factors today

Finance beyond the Numbers.

Dispelling common misconceptions about factoring


Dispelling common misconceptions about factoring Many growing companies in South Africa, especially SMEs, are seeking business finance that provides more flexibility than a traditional bank loan or overdraft facility. Not all organisations are able to weather the lengthy approval processes that often go hand-in-hand with bank finance. They require working capital solutions that keep pace with their operational cycles or scale with their turnover.

Factoring is a fast, flexible and strategic working capital solution that has been adopted by many businesses in South Africa – to the extent that factored turnovers across the country are now in excess of R25 billion per annum.

However, despite the growing popularity of this well-established and globally-utilized business finance strategy, some SMEs are still reluctant to explore factoring due to misconceptions that cloud their view of this innovative funding method.

What is factoring?

Factoring is a way for growing businesses of all sizes to unlock the capital that is tied up in their accounts receivable (i.e. invoices). Instead of suffering through seasonal fluctuations in demand or waiting months and months for payments due on credit sales, a factoring company can advance funds against a company’s outstanding debtor balances.

    This boosts cash flow, so the business can:
  • Cover day-to-day operational expenses
  • Invest in stock, equipment and other resources required to fulfil the next round of orders
  • Take advantage of new business opportunities
  • Continue putting growth plans into action

With factoring, the amount funded is based on turnover and not tied to bricks and mortar value. This enables the company to access business finance that is commensurate with its income.

FICTION VS. FACT

Misconception # 1: Factoring is a solution for businesses in financial trouble

Factoring is certainly a lifeline for companies with cash flow problems. But these issues are caused by credit terms that outlast cash reserves rather than poor turnover. Most companies that enter factoring agreements are experiencing an upwards business cycle. Factoring firms also tend to partner with businesses that have sound, creditworthy customer bases.

Misconception # 2: Factoring is only for large companies

In reality, factoring can suit any business that trades with another company. This includes small and medium enterprises – companies that often have smaller working capital reserves to draw on and therefore find it more challenging to wait months and months for payments due. For these SMEs, factoring provides the perfect cash flow solution.

Misconception # 3: Factoring is a loan

Factoring is the sale of an asset (accounts receivable) and therefore does not create a liability on the balance sheet. With a bank loan, a company must pay back the principal loan plus interest. Factoring, by contrast, is not a loan and the company therefore does not incur debt when factoring.

Misconception # 4: Factoring damages customer relationships

Some businesses worry about how their customers will react when a factoring company enters the picture. However, leading factoring firms handle credit control with such respect and professionalism that this reflects well on the company and adds value to the customer relationship. The company also avoids having to broach sensitive issues surrounding collections directly with customers, which ultimately creates a more positive customer experience.

Misconception # 5: Factoring is just a financial transaction

Factoring firms provide a range of debtor administration and credit control services to the businesses that partner with them. By evaluating customers’ creditworthiness, phoning debtors for payments due, sending reminders and final demands, handling receipting and reconciliations, and more – factoring companies liberate business owners from having to do this work or dedicate resources to these tasks. This represents a significant time and cost saving.

Why choose Merchant Factors?

Merchant Factors has been providing working capital solutions to SMEs and growing businesses for almost 30 years – providing these organisations with an innovative and flexible alternative to bank finance, while supporting them with expert credit control and debtor administration services.

Merchant Factors’ independence, experience and flat organisational structure means that, unlike many larger financial services institutions, Merchant Factors can customise its facilities to suit most companies’ unique needs.

This independence also enables Merchant Factors to offer the shortest turnaround time in the industry from application to pay-out.

For fast, flexible finance – contact Merchant Factors today

Finance beyond the Numbers.

The value of having credit-worthy customers


The value of having credit-worthy customers Many business owners lose sleep agonising over their credit scores – which can be a major obstacle when applying for finance. A blip in your company’s credit record, even based on an issue that was resolved years ago, may affect your ability to access a bank loan or overdraft facility.

Fortunately, traditional bank finance is not the only lifeline available to businesses in need of working capital. Factoring, a funding strategy used by enterprises of all sizes in South Africa and abroad, focuses on your customers’ creditworthiness rather than your own.

This means that you can move beyond worrying about your own credit score. It also means that you need to have a sound due diligence process in place, for both new and existing customers, to ensure that you only sell on credit terms to those customers who are willing and able to pay on time, and in full.

How factoring works

Most businesses that trade with other businesses sell their products or services on credit. If you’re such a company, you may experience months where there’s very little cash flowing into your business. Waiting months and months for your customers to pay can leave you with insufficient funds to cover your day-to-day expenses. This is a risky position to be in; and one that is not conducive to growth at all.

Factoring gives you the ability to draw cash back into your business before your customers pay, by unlocking the working capital that is tied up in your outstanding debtor balances. This is such a fast and flexible way to enhance your cash flow and continue growing your business, without having to sacrifice equity or control.

You also avoid having to jump through endless hoops to secure finance from the banks, which often takes so long that it doesn’t match the needs of your unique operational cycle at all.

Are your customers credit-worthy?

The more credit-worthy your customers are, the more value you will derive from a factoring agreement. But you don’t need to handle all the due diligence on your own.

Merchant Factors provides a comprehensive debtors’ book administration and collection service as part of a factoring agreement. Trained professionals on the Merchant Factors team also manage credit control, conducting detailed credit checks and assessing credit limits with access to a range of leading databases, including Merchant Factors’ own. This helps companies to identify high risk debtors early, and prevent losses and bad debts from crippling the business.

    This expert service includes:
  • Opening new debtors’ accounts
  • Checking the completion of credit application forms
  • Performing the necessary credit checks and assessing credit limits
  • Sending reminder letters and final demands where necessary and as guided by clients
  • Verifying deliveries as an after-sales service
  • Assisting in the settling of disputed accounts and liaising with attorneys when accounts are handed over (in consultation with clients)

Merchant Factors always keeps companies well-informed of all assessments and transactions by means of clear, comprehensive sales and related management information. This is shared by email, in hard copy or via an online portal that is available around the clock.

Finance that grows with your business

With Merchant Factors, your finance agreement is based on your turnover rather than the value of bricks and mortar. This means that your business model or expansion plans are not limited by an inflexible overdraft cap or loan amount. Rather, your access to working capital grows as your revenue increases.

The danger of not choosing a scalable funding approach is that your business could outgrow your loan amount, once again plunging you into a cash flow crisis. With factoring, your finance matches your operational cycle and your unique business needs.

Why Merchant Factors?

Merchant Factors was founded in 1988 to offer growing businesses an alternative to traditional bank loans. The firm is a leader in local and cross-border finance; and is able to tailor its facilities to suit most emerging small and medium size businesses. Since its inception, Merchant Factors has supported over 2000 growing companies.

As the only truly independent debtor finance institution in South Africa, Merchant Factors can offer the shortest turnaround time in the industry from application to pay-out, in addition to comprehensive debtor administration services.

For fast, flexible finance – contact Merchant Factors today

Finance beyond the Numbers.

Does factoring affect customer relationships?


Working capital and credit control services to take your business forward SMEs in South Africa and abroad use factoring to improve their liquidity ratios and keep their business finances healthy. Factoring is a form of debtor finance that involves a company selling its invoices to a third party (a factoring company) to improve cash flow and ensure ready access to the working capital required for growth.

When a business makes a credit sale, payment is normally due within a pre-determined period, typically 30, 60, 90 or even 120 days. With a factoring contract in place, the organisation does not have to wait for months to receive cash against the sale. Rather, it can access funds immediately – to fund daily operations, pay salaries, cover rent and fuel growth.

However, converting sales into cash is just the beginning. When handled by an expert factoring company, this approach to business finance also enables companies to cut complexity in the back office.

Factoring saves time and resources

Many companies choose factoring over bank finance due to the extensive support that reputable factoring companies provide in the areas of credit control and debtor administration.

When a business enters a factoring agreement with Merchant Factors – a financial institution that has been providing working capital solutions to growing businesses for almost 30 years – Merchant Factors acts as the company’s accounts and credit control department.

    The services provided by Merchant Factors include:
  • Opening of new debtors' accounts
  • Performing debtor credit checks and assessing credit limits using intelligence gained from Experian, ITC and the Merchant Factors database
  • Sending reminder letters and final demands where necessary
  • Verifying deliveries as an after sales service
  • Banking receipts and allocating payments made according to remittance advices received from debtors
  • Assisting in settling of disputed accounts

How this benefits business

Many smaller businesses do not have the capacity, skills or budget to handle these processes effectively and successfully in-house. With Merchant Factors handling credit control and debtor administration, the business does not need to acquire or retain these sought-after (and therefore costly) skills.

Beyond saving time and money, the business owner also avoids having to deal with overdue invoices or disputed accounts personally, which is a huge relief. These types of interactions can be stressful and place strain on the good relationships that the business has built with its customers. Merchant Factors acts as a buffer between the business and its clients in this regard.

Does factoring impact customer relationships?

Some businesses are concerned about how their clients will react when Merchant Factors begins dealing with them.

Merchant Factors understands that healthy customer relationships form the bedrock of any business strategy. In today’s competitive commercial landscape, the customer experience can be the difference between maintaining and losing a business relationship.

To this end, Merchant Factors handles credit control with the utmost respect and professionalism. A team of highly-skilled and experienced credit control professionals will quickly develop relationships with the company’s customers, ensuring efficient collection of monies owed – in a way that reflects well on the company.

Merchant Factors also helps to explain its involvement and correct any misconceptions that a company’s customers may have. Factoring is a well-established business finance strategy that is used by many companies in South Africa and internationally. Over R25 billion in turnover is factored by South African businesses each year – helping to fund growth and keep businesses healthy during seasonal fluctuations in demand.

It’s also important to note that factoring does not require an SME to relinquish control of any important customer or business decisions. Should it be necessary for Merchant Factors to issue a final demand, for example, it will only do so in conjunction with the company. Existing clients often use Merchant Factor’s disciplines as an “excuse” thus avoiding any negative impact on their relationship with the debtor!

Why Merchant Factors?

Merchant Factors was established in 1988 to offer growing businesses with an alternative to traditional bank finance. Since its inception, Merchant Factors has provided financial and professional support to over 2,000 organisations, enabling them to keep their business strategies on track.

Also, as the only truly independent debtor finance institution in South Africa, Merchant Factors offers businesses the shortest turnaround time in the industry from application to pay-out.

For fast, flexible finance – contact Merchant Factors

Finance beyond the Numbers.

Invoice factoring and invoice discounting: what’s the difference?


Working capital and credit control services to take your business forward As a small or medium enterprise, you may be looking for an alternative source of business finance – a funding mechanism that does not carry the same limitations as a traditional bank loan. You may need faster access to finance than the banks are able to give you; or you may be looking for a working capital solution that grows with your turnover.

Factoring is a financing strategy adopted by businesses around the world to unlock the cash that is tied up in their accounts receivable (i.e. invoices). Instead of waiting months and months for the payments due to you on your credit sales, a factoring company can advance working capital against your outstanding debtor balances.

This is a smart way to stay cash flow positive, so you can continue paying your operational expenses while also funding your business growth plans. The amount of money you receive is based on your invoice amounts and not tied to bricks and mortar value, so you can access an amount that is commensurate with your income.

Invoice factoring or invoice discounting?

Invoice factoring is often confused with – or compared to – invoice discounting. While these two financial services have some similarities, they are not one and the same.

With both invoice factoring and invoice discounting, a third party provides the working capital against the accounts receivable of a business. With factoring (or sometimes referred to as “invoice factoring”), the third party (a factoring company or Factor) buys the credit sale invoices from you. With invoice discounting, the third party generally uses the accounts receivable as collateral for the funding.

There is no loss of equity or control of the business with either option.

Sales ledger management

    When you enter into a factoring agreement, the factor acts as your accounts and credit control department, taking over the following functions:
  • Opening accounts for new customers;
  • Managing credit checks and assessing credit limits;
  • Handling collections and payments;
  • Sending reminder letters and final demands where necessary;
  • Assisting in settling of disputed accounts; etc.

With invoice discounting, on the other hand, all these roles remain your responsibility. You continue to administer your own sales ledger, chase payments and manage credit control processes.

Due to the amount of back office support provided, which frees up time and other resources, factoring will most likely appeal if you do not have the budget, staff, time or patience to manage these functions in-house. Essentially, factoring gives you an expert and highly professional credit control team at your side.

Acknowledging that there’s a third party involved

When you opt for the factoring route, your customers will be made aware that you have handed your debtors’ book over to a factoring company.

With invoice discounting, however, you continue to collect payments from your customers directly, and they are usually unaware that there’s a third party involved.

While confidentiality may be very important to you, it’s essential to note that factoring is a well-established and well-respected financing method worldwide – for many different reasons.

Many companies choose to factor their invoices to ensure that they have enough cash available for growth, whether they’re planning to buy more stock, upgrade equipment, increase their talent pool or expand their footprint. An expert and professional factoring company can explain their involvement to your customers in these terms, dispelling any concerns they may have around dealing with a third party.

Which option is best for your business?

Every company has own unique business goals, financial needs and customer relationships. All these issues will influence the decision between factoring and invoice discounting.

If factoring sounds like the right option for your business, be sure to select a factoring company that has the experience, reputation and independence to provide your business – and your valued customers – with the exceptional level of service deserved.

Why choose Merchant Factors?

Merchant Factors has been providing working capital solutions to SMEs and growing businesses for almost 30 years. The company was founded to offer organizations in South Africa with a sound alternative to traditional bank loans and overdrafts – and today, Merchant Factors is the leading independent factoring specialist.

Bringing a team of expert credit-control professionals with it, Merchant Factors liberates businesses from having to evaluate their customers’ creditworthiness, phone debtors for payments due, send reminders and final demands, or handle receipting and reconciliations. This enables small business owners to focus on business issues instead of wasting hours and hours chasing payments and juggling other sales ledger duties.

Merchant Factors’ independence, experience and flat organisational structure means that, unlike many larger financial services institutions, it can customise its facilities to suit most small and medium size emerging businesses, no matter whether their turnover is R100,000 or R15 million per month.

This independence also enables Merchant Factors to offer the shortest turnaround time in the industry from application to pay-out.

For fast, flexible invoice financing – contact Merchant Factors today.

Finance beyond the Numbers.