Factoring Articles

What happens when the bank says “no”?

What happens when the bank says “no”? Needing access to finance is part and parcel of running a business. And many companies explore the traditional bank loan route first. However, conventional sources of capital are not easy to get.

A bank will typically review your company’s assets, liabilities and credit history, plus take a hard look at how long your company has been operational, its overall financial health, profitability, positive cash flow and debt service coverage, among other factors. If any one of these items fails to meet the lender’s criteria, then a loan application may not get rubber-stamped.

There is another way

Even if a bank rejects your loan application, this is not the end of the road. There is always factoring.

Factoring is a finance solution that focuses on the quality of your customer’s credit rather than your own credit score. This means that if your company has accounts receivable to leverage, you can still access working capital – and much more.

What is factoring?

  • It’s a financing strategy that boosts your cash flow.
  • It is also known as ‘accounts receivable financing’.

How does factoring work?

  • It involves you selling your unpaid invoices to a third-party organisation, known as a ‘factor’.
  • The factor collects payment of the invoices directly from your customers, in line with your invoice terms.
  • This enables you to draw cash back into your company when it is needed, rather than having to wait out the credit sales terms.

A practical illustration

You can’t afford to wait for months until your customers clients pay your invoices. You need the cash that’s owing to you. You must pay salaries, process the next round of orders or capitalise on new opportunities before your competitors do. Factoring unlocks the money that your business already owns.

Why factor?

Get faster payment on your invoices and boost cash flow. This in turn means that your company can:
  • Meet expenses
  • Lessen the risk of potential bad debt
  • Upgrade equipment
  • Hire new employees
  • Redirect monies to other activities that grow the business
  • Gain a competitive advantage. With factoring in place, you can accept deals with clients who can only accept extended credit sales terms without compromising your cash flow.

Why factoring is better than a bank loan

  • Easier to access: Banks are under immense pressure from regulators and a volatile economic environment. This means that many companies – especially SMEs – are struggling to achieve bank loans.

  • Shorter turnaround times: Banks may take longer than you can afford to process your application. Even once the loan is approved, you may still have to wait months before the cash is made available to you. Factoring, however, boosts your cash flow almost immediately.

  • Scalable loan amount: A bank loan’s limit is defined by the value of bricks and mortar. This means that your access to capital does not increase as your turnover grows. It’s capped. So your business could potentially grow too fast for the loan amount, translating into a cashflow crisis. But because factoring is based on your accounts receivable, the amount of money you can finance increases as turnover rises.

Need working capital, now?

Founded in 1988, Merchant Factors offers growing businesses an alternative to traditional bank loans. The firm specialises in local and cross-border finance and can tailor its facilities to suit most businesses. Since inception, Merchant Factors has empowered over 2000 businesses to reach their financial goals.

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

For fast, flexible invoice financing – contact Merchant Factors today

Finance beyond the Numbers.

Fintech and the future of factoring

Fintech and the future of factoring As a small company that has battled to access working capital in the past, you may be wondering whether fintech is the business finance solution you’ve been looking for.

What is fintech?

In recent years, fintech has become a frequently used term in financial services. It refers to companies that provide or facilitate financial services through innovative technology.

Finance is a key component of every company’s business activity. Worldwide, many small to medium-sized enterprises (SMEs) struggle to access the working capital they need to grow their business. According to the International Financial Corporation (IFC), a funding gap of more than $2 trillion exists for small businesses in emerging markets alone.

There are many reasons for this. The finances of SMEs are characterized by high complexity, yet they are low scale. For traditional lenders such as banks, extending credit to small businesses is often too costly, given the small loan size. Further, driven by regulation, banks have reduced their exposure to smaller businesses in recent years. These challenges have given rise to fintech as an alternative funding model.

Can fintech bridge the finance gap?

Fintech is already shifting the ways financial services are being offered, promising to provide access to underserved markets in new ways.

Key fintech innovations include:

  • Peer-to-peer lending
  • E-commerce finance
  • Online supply chain finance
  • Online trade finance
  • Invoice finance

What does this mean for the factoring market?

Recently, fintech firms have begun to offer factoring as a digital service. Some factoring platforms have emerged that:

  • Allow companies to upload their accounts receivable (invoices)
  • Check the authenticity of these invoices
  • Offer a suite of investors the opportunity to fund the business against its invoices

Essentially, these fintech platforms are turning invoice finance into a peer-to-peer funding or even crowd funding service. In this case, it’s important to note that the fintech provider does not provide the working capital, but rather the platform for accessing this finance from other investors.

While this certainly lowers the barriers to finance, it may also drive up the cost of factoring. In many cases these fintech companies simply offer high-interest loans that use your receivables as collateral.

And even when fintech factoring services are offered at competitive rates, there is no added value in the form of personalised, professional business support. Many of these fintech firms are start-ups. This means they’re cash-conscious and are likely to automate their services to save time and money. And when investors buy your invoices and handle debtor administration themselves, you may be handing over a relationship with your client to an unknown third party.

Get the benefits of fintech, with added advantages

Merchant Factors was founded 30 years ago to provide growing businesses with an alternative to traditional bank loans and overdrafts.

As the leading independent factoring specialist in South Africa, this forward-thinking firm takes advantage of modern technologies to offer most of the benefits of fintech – but with more experience, more flexibility and a more personal approach.

As part of any factoring facility, Merchant Factors offers expert debtor administration and credit control services that add immense value to your business. The team quickly develops relationships with your customers, explaining the positive benefits of factoring – such as the fact that it is often used to fund business growth. And all debtor administration is conducted transparently. Merchant Factors’ online platform keeps you informed 24/7 through clear, comprehensive sales and related management information.

If you’re looking for a factoring solution that supports your financial goals and nurtures your customer relationships, then Merchant Factors is the smart choice.

For fast, flexible business finance – contact Merchant Factors today

Finance beyond the Numbers.

How to keep your small business afloat with factoring

How to keep your small business afloat with factoring In South Africa, experts predict that SMEs will provide 90% of all new jobs by 2030. As the owner or financial director of a small business, you may be wondering how you will ever get to the point where you’ll be able to hire more staff – staying in business is challenge enough!

Starting a business and keeping it going is no simple task. Research indicates that 70% to 80% of small businesses in South Africa fail within the first five years.

Why is this happening?

There are many reasons why businesses collapse. They may lack clear business plans or fail to market their solutions effectively. Perhaps they are under-resourced or struggle to maintain a competitive edge in a challenging commercial environment.

Many businesses fail because they cannot manage cash flow. A cash flow crunch can cause knock-on effects such as not paying suppliers on time and landing up with bad credit record. Starved of cash, operations slow down, reducing production. Managing expenses, as well as tracking when customers are due for payments, can be a challenge – and a distraction from keeping the business running.

How can factoring help?

Factoring empowers companies to manage their cash flows better, by unlocking working capital that is tied up in outstanding debtor balances. It works as follows:

  • A business sells its accounts receivable to a factoring company
  • The factoring company provides the business with around 75% of the invoice amount upfront
  • The factoring company then manages debtor administration and credit control on the business’s behalf
  • Once the business’s customers have paid the invoices in full, the factoring firm provides the business with the outstanding balance, minus an agreed admin fee

Factoring allows businesses to grow without having to sacrifice equity or control.

Factoring vs. bank finance

Unlike traditional bank loans where accessing working capital can involve lots of paperwork and long waiting periods, factoring is more flexible.

If you have a history of bad credit, even if this has been resolved, your request for finance from a bank could be denied. Factoring agreements, on the other hand, focus on the quality of your customer’s credit rather than your company’s credit score. This means that any issues with your own credit record will not necessarily affect your chances of factoring your invoices.

Factoring companies also provide services and support that traditional funders like banks do not. They typically provide ongoing access to account managers who are experts on your business cash flow and who will help you make effective financing decisions. They take over a significant portion of your administrative work, providing services such as:

  • Evaluating your clients' creditworthiness
  • Sending monthly statements
  • Phoning debtors for payments due
  • Sending reminders and final demands
  • Handling receipting and reconciliations
  • Liaising with attorneys if it becomes necessary to institute legal action

What are the benefits for you?

All this enables your business to make better credit decisions without having to worry about the staffing of these functions – or the overheads associated with the collection process. You are now able to spend time and money growing your business instead.

Having cash on hand enables you to:

  • Purchase new equipment, stock or materials
  • Negotiate better deals with your suppliers, such as bulk purchasing discounts
  • Accept larger projects or orders
  • Offer incentives to new customers
  • Focus on other areas of your business such as improving product quality
  • Invest in technology
  • Hire personnel with the right skills
  • Reinvest profits to build a better and stronger company with a competitive edge

Factoring is also a source of financing that grows with your turnover. As sales increase, more cash becomes available for you to use, which allows you meet demand constantly.

Why partner with Merchant Factors?

Merchant Factors has been providing factoring solutions to businesses in South Africa and beyond for 30 years. The firm specialises in providing organisations with an innovative and flexible alternative to bank finance, while supporting them with expert credit control and debtor administration services.

With Merchant Factors as your factoring partner, you can free up working capital to meet all your business needs – and you can do this quickly, as Merchant Factors offers the shortest turnaround time from application to pay-out in the industry.

For fast, flexible finance that’s aligned with your business goals – contact Merchant Factors today

Finance beyond the Numbers.

Battling to access working capital? Branch out.

Battling to access working capital? Branch out. Access to capital can be a huge stumbling block for small businesses in South Africa. This does not only apply to start-ups looking for funding to get off the ground. There are many small and medium sized enterprises (otherwise known as SMEs) that have been in business for years, maybe even decades, that reach a point where they need a cash injection. Often, they want this working capital to fund growth – perhaps to expand into a new market or to invest in stock to increase their sales.

Finding funding

When small businesses need funding, they tend to approach the banks first. Typically, they’ll apply for a loan or overdraft. While this works well for certain companies, accessing working capital in this way can involve lots of paperwork, long waiting periods and sleepless nights. It can take weeks, sometimes months, for your application to be vetted. And if you have a history of bad credit, even if this has been resolved, your request for finance could be denied. If your facility does get approved, it can take longer than you think for this funding to reach your business bank account.

How are you supposed to keep operating optimally without the cash you need to meet your financial goals?

Diversify your sources

We’ve all been taught that we should never put all our eggs in one basket. The same lesson applies to business finance.

When you rely too heavily on one funding avenue, this puts your business at risk. If this funding takes too long to come through, you could be in a position where your cash flow is not sufficient to cover your expenses. What will this mean? Unpaid bills, bad credit, unhappy staff and frustrated customers?

For these reasons and more, the Organisation for Economic Co-operation and Development (OECD) advises SMEs to broaden their sources of finance, so they can “continue to play their role in investment, growth, innovation and employment”.

It makes sense to diversify. So where do you go next?

A smart alternative to bank finance

One funding approach that works well in tandem with conventional bank finance is factoring. This is a type of asset-backed finance that provides your company with working capital, in amounts that are linked to your turnover. The more you invoice, the more you can factor.

Here’s how it works:

  • You sell your accounts receivable (i.e. your invoices payable) to a factoring company
  • This company then pays you up to 75% of the invoice value
  • The factoring company also handles your debtor administration, sending monthly statements, handling receipting and reconciliations, doing credit checks on new customers, and so forth
  • Once the account is paid in full, you receive the outstanding balance, minus an agreed admin fee

It’s simple, yet effective. One of the chief benefits of factoring is access to working capital for optimal productivity and growth, without losing equity or control. You also have an expert team taking care of your credit control and debtor administration functions. This saves hours and hours of your valuable time. You can focus on other areas of your business, such as improving product quality or following up new sales opportunities.

Agile finance

Merchant Factors specialises in innovative finance solutions for growing businesses. With 30 years of experience, we understand that every company has unique needs, and we’re able to tailor our facilities to suit your business goals or operational cycle.

Since we opened our doors, we’ve provided funding for well over 2,000 organisations, helping them to keep their businesses running smoothly and successfully. We are also proud, as the only truly independent debtor finance institution in South Africa, to be able to offer you the shortest turnaround time in the industry from application to pay-out.

If you’re keen to explore factoring as an alternative to run-of-the-mill bank finance, or to fill the funding gap while you wait for a long-term financing agreement to commence, we have a range of solutions for you.

Diversify your business finance strategy – contact Merchant Factors today

Finance beyond the Numbers.


How to cut credit risk in your business

How to cut credit risk in your business When your company sells products to a customer and allows them to pay later, you are selling on credit. This benefits your customer, who gets to wait a month or more before paying your invoice. Credit sales terms vary, sometimes permitting customers 30, 60, 90 or even 120 days to pay after receiving the invoice.

You may think that keeping customers happy is good for business. And there is some truth in this notion. But you are also putting your company at risk, because your customer could fail to pay. If this happens, you will be out of pocket. You may struggle to pay your rent, meet your salary bill and buy the stock you need to fulfil new product orders. There will also be less cash to invest back into your business. Without working capital, how will you grow, win new accounts or improve the quality of your goods?

The risk that customers won’t pay is called credit risk. When not managed properly, this type of risk can be very bad for business.

Cutting credit risk

Keen to limit your exposure to credit risk? Here are three ways you can achieve this.

1. Do credit checks

Do you perform credit checks on all customers before agreeing to credit sales terms? Knowing your customer is the first step. Draft a clear credit application form that asks for:

  • Business contact details
  • Personal contact details for all owners and beneficial owners
  • Number of employees
  • Bank and trade payment references
  • A history of business or personal insolvency
  • Any other names under which the company operates

Then, verify all the details through a credit reporting agency.

2. Set credit terms

Your credit application should also specify what your credit terms are; and what happens when your customer fails to meet these. This may require some back and forth. Every company wants to hold onto its cash for as long as possible – and your customers may ask for credit sales terms that span months. Instead of agreeing at the drop of a hat, see if you can negotiate your customers down to 30 days or less. It may be easier than you think; and your cash flow will be much better for it!

3. Keep track of payments

You need to stay on top of your accounts receivable. If you do not have one yet, put a system in place that alerts you when payments are due. If your customers are late to pay, even by a day, send them a friendly reminder. If they still haven’t paid a week later, it’s worth giving them a call to see why they’re overdue. Get them to commit to a new payment date, in black and white.

But won’t this waste time and affect your customer relationships?

These steps can help you to reduce your credit risk. But you may be worried about how much time all this admin will take. You may also feel uneasy talking to clients about credit terms and overdue bills. One way to solve both these challenges is to pull in a professional. An expert partner like Merchant Factors can provide valuable support in these areas.

How Merchant Factors can help

Merchant Factors is a financial firm that specialises in working capital solutions that keep your cash flow healthy and help you to minimise credit risk.

Factoring is a type of business finance that allows you to draw cash back into your business before your customers pay your invoices. Merchant Factors pays you up to 75% of the value of these invoices. They then deal directly with your customers, collecting payments in line with your agreed credit sales terms. The balance will be settled as soon as your customer pays in full, minus an agreed admin fee.

To make your life even easier, Merchant Factors acts as your accounts and credit control department. This can save hours of your valuable time. The expert team handles everything from opening new debtors' accounts and performing deep credit checks, to handling payments and more. All these services are carried out in close consultation with you as part of the factoring agreement.

For more information on fast, flexible business finance – contact Merchant Factors today

Finance beyond the Numbers.

EU factoring industry continues to expand

EU factoring industry continues to expand Research shows that the European Union (EU)’s factoring market is expanding at a constant and steady pace. The EU Federation for Factoring and Commercial Finance recently released its half year turnover results for the region’s factoring sector. According to these findings, factoring turnover continued to increase in the first half of 2017 – following on from seven years of consecutive growth in this burgeoning market.

As detailed in the EUF report, factoring turnover (total value of gross invoices purchased) in the first six months of 2017 for EU countries reached over 776 billion euro. This represents an impressive year on year increase of 9%. Furthermore, the GDP penetration ratio for the first half of 2017 was 10.4%, compared to 9.6% in the same period of 2016.

According to the Federation, these results indicate that “factoring is now perceived by EU-based companies as one of their main sources of funding” .

The EUF, which includes national and international industry associations that are active in the EU, focuses on improving the availability of finance to business in the region, particularly the SME sector.

Quick recap: what is factoring?

Factoring is a working capital solution that enables companies to raise funds against their accounts receivable. Instead of waiting 30, 60, 90 or 120 days for payments due on credit sales, a business can partner with a factoring company, which in turn advances funds against these outstanding debtor balances.

This not only allows a company to draw much-needed cash back into the business, but also provides the organisation with scalable finance that is tied to turnover rather than fixed assets, such as bricks and mortar. Factoring is therefore an ideal funding strategy for growing businesses, as well as organisations with a seasonal turnover.

With fast and flexible access to funds, companies can meet operational expenses optimally, pay suppliers early and capitalise on trade discounts, take advantage of new business opportunities, and more.

Considering the growth of the factoring market in the EU, more companies should be taking advantage of this well-established and highly beneficial form of financing in South Africa. Here, factoring provides companies with a reliable alternative to traditional bank loans and overdrafts, which are often challenging to access, especially in the SME sector.

Factoring adds more value than business finance alone

Another advantage of choosing this type of working capital solution, is that factoring companies also provide a comprehensive and professional debtor administration service. The factoring company acts as a credit controller on the business’s behalf and it also administers the sales ledger for its clients.

An experienced factoring company is able to provide the following services:

  • Conducting credit checks
  • Phoning debtors for payments due
  • Sending reminders and final demands
  • Handling receipting and reconciliations
  • Assisting clients to liaise with attorneys if it becomes necessary to institute legal action

This professional support allows a business to focus its resources elsewhere. This could represent a significant time and cost saving for an SME.

Why partner with Merchant Factors?

Merchant Factors has been providing factoring solutions to businesses in South Africa and beyond for 30 years. The firm specialises in providing 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, its facilities can be tailored to suit most companies’ unique needs.

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

For fast, flexible business finance – contact Merchant Factors today

Finance beyond the Numbers.

New year’s resolutions for your small business

New year’s resolutions for your small business As 2018 begins, what are your business goals for the year ahead? If you’re planning to expand, explore new opportunities or simply keep your finances healthier than they were last year, here are three top tips.

1. Protect your cash flow

No matter what industry you’re in, having ready access to cash resources is critical. Even when your income looks good on paper, your working capital could still be tied up in assets such as your accounts receivable, leaving you with a poor cash flow.

If you’re selling on credit terms, you could wait up to 90 days for the cash that’s owing to your business to flow back. Depending on the other resources that you have available, this could put your cash flow under pressure. It may become challenging to cover your operating expenses that keep your business running optimally.

Alternatively, you may be able to cover day to day business running costs, but find that you have no spare working capital to invest in the growth of your organisation. Even if you’re not planning to expand this year, what if an unexpected opportunity comes your way? If you don’t have the funds to invest in the necessary raw materials, stock, equipment, technology, skills or other resources you may need to meet these new demands, will the business go to a competitor instead?

Keeping your cash flow healthy should be a top priority for 2018. The last thing you want is for your company to be stuck in a rut, where you never have enough cash available to innovate, improve your offering, explore new possibilities or strengthen your competitive advantage.

2. Consider diversifying your sources of business finance

We’re operating in a volatile economic and political climate. By diversifying your sources of business finance, rather than relying on one funding avenue, you can protect your cash flow more successfully.

Many SMEs in South Africa are not aware of the various funding options that are available to them; and they therefore follow the more traditional path and apply for a conventional bank loan or overdraft. Unfortunately, in an environment where financial institutions are under immense pressure from regulators to take a risk-based approach, many smaller businesses are finding it challenging – or time-consuming – to get funding applications approved.

Due to the amount of due diligence required, qualifying for a bank loan can be a long, drawn out process. The bank needs to review your company’s financials, assets and liabilities, and credit history. This can take months, putting severe pressure on the financial health of your business.

What happens if you need this working capital urgently, to cover expenses or process a large new order? This is where it makes sense to diversify your funding strategy, by adding a fast and flexible working capital solution like factoring.

Factoring boosts cashflow swiftly, enabling you to meet expenses or seize opportunities as they arise. This funding mechanism makes it possible for you to raise funds against your accounts receivable.

3. Strengthen customer relationships, but set firm boundaries

Like you, many of your customers are looking for ways to keep cash in their businesses. This means that they are likely to ask for credit sales terms. While you do have to keep your good relationship and competitive advantage intact, be careful not to automatically agree to 90- or 120-day terms.

Try to negotiate credit sales terms of 30 days or less. This will put you in a much healthier cash position. It’s important to keep reminding yourself that credit is a privilege – not a right. It’s also important to assess your customers’ creditworthiness on a regular basis to be sure you’re only extending credit to organisations that can pay you on time and in full.

Merchant Factors can help you to make these goals a reality during 2018

Merchant Factors was founded 30 years ago to provide growing businesses with an alternative to traditional bank loans and overdrafts. As a leader in local and cross-border finance, the firm has the expertise and flexibility to support your business financing and growth goals – in a way that nurtures and supports your valued customer relationships.

For fast, flexible business finance solutions – contact Merchant Factors today

Finance beyond the Numbers.

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.