Can you afford to wait? The solution to lengthy invoice payment terms

Can you afford to wait? The solution to lengthy invoice payment terms


Can you afford to wait? The solution to lengthy invoice payment terms Late invoice payments are a major headwind for many business owners. This is an issue of particular concern for companies in the small and medium enterprise (SME) sector, because SMEs generally have fewer resources and their cash flows are more at risk when their debtors take months to pay.

As a business owner, a weak cash flow can impact your ability to meet your day-to-day operational costs. It can also have a broader impact, affecting your employees’ job security and career goals, as well as the relationships you have with various stakeholders in your supply chain – not to mention your own business development plans.

    A recent survey in the U.S. 1 explored the impact that unpaid invoices and late payments have had on SMEs across the country. The research results indicate that:
  • 23% of small business owners are unable to hire new employees;
  • 23% can’t invest in new equipment;
  • 20% have put their marketing efforts on hold;
  • 18% are unable to offer pay increases or bonuses to their employees;
  • 18% are unable to offer pay increases or bonuses to their employees;
Local SMEs are also affected

Late invoice payments are also a stumbling block for companies in South Africa. Xero, a local research firm, recently surveyed 517 small businesses across South Africa and this research indicates that almost one third of respondents (32%) have experienced cash flow issues due to late invoice payments.2

Commenting on the study, Marnus Broodryk, CEO of The Beancounter and Shark Tank SA, said:

"Late payments are a big problem for many small businesses. The resulting issues with cash flow can stifle growth and even put entrepreneurs out of business.”

How do late invoice payments affect your business?

As this research shows, chasing accounts receivable can place pressure on many areas of a business. When your company fails to receive timely payments on your invoices – or is forced to wait out extended payment terms of 60, 90 or even 120 days – it puts a stranglehold on your cash flow, affects the health of your business and forces you to place your growth plans on hold.

Without access to working capital, you’re unable to buy the equipment or stock required to increase production and sales, finance marketing efforts to attract new opportunities, or invest in the human capital that you need to take your business forward.

You may also struggle to reward your valued staff, which could affect motivation levels and threaten your ability to retain business-critical skills and talent. Ultimately, this impacts your profitability and your reputation in the market.

At the same time, many small businesses waste significant resources chasing their late payments, which means that invoice backlogs are not only affecting cash flow but also taking up time that would be far better devoted to more strategic pursuits.

How to unlock capital

When your clients take months to pay you, what are your options? Qualifying for a bank loan can be a time-consuming process, involving an often frustrating review of your company’s financials, assets and liabilities, and credit history.

Fortunately, there is a faster way to access much-needed working capital. Invoice factoring is a financial strategy used by businesses around the world. Sometimes referred to as “accounts receivable financing”, factoring involves a business selling its invoices (i.e. accounts receivable) to a third-party organisation, known as a “factor”. The factor then collects payment of the invoices directly from the business’s clients. Essentially, factoring gives you the ability to access the cash that is owed to you without having to wait out your clients’ lengthy invoice payment terms.

Unlike a bank loan, a factoring agreement unlocks working capital fast, without debt being incurred.

Why Merchant Factors?

At Merchant Factors, we believe that prolonged invoice payment terms pose a serious risk to the SME sector. We founded our business in 1988 to provide a solution to this challenge. Since our inception, we’ve successfully assisted over 2,000 businesses in reaching their financial dreams.

Today, Merchant Factors remains a fully independent finance house, which means that we are agile enough to provide you with working capital solutions as you need them. We understand that you can’t afford to put your business goals on hold – and we therefore offer you the fastest turnaround time in the industry from application to pay-out.

For fast, flexible financing – contact Merchant Factors today.

Finance beyond the Numbers.