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.
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.
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.