“Never take your eyes off the cash flow because it is the lifeblood of business.” – Richard Branson. Many small- and medium-sized businesses invoice healthy amounts for products delivered and services rendered, yet experience a cash flow crunch because their customers require market related credit terms.
In South Africa, it is not uncommon for businesses to sell on terms extending to 30, 60, 90 or even 120 days after date of statement. While their reasons for doing so vary, these companies often need to allow such terms to prevent their customers from going elsewhere.
Unfortunately, not all organisations can afford to wait so long to receive the cash that is owing to them. Doing so could put their cash flow as well as the health of their businesses at risk. Not having working capital means not being able to meet payroll, purchase raw materials, maintain stock levels, process the next round of orders, pay suppliers or cover other business-critical expenses.
Uncertainty over cash flow may also mean putting business growth plans on hold. The risk of spending on increased stock, upgrading equipment or exploring a new business avenue could be too great if it is unclear when clients are going to pay their invoices.
Invoice factoring could be the answer
One way to inject much needed cash into a business – now rather than later – is to opt for a well-established financing method called invoice factoring. Used by companies around the world to finance operational cycles and meet expansion plans, invoice factoring involves a business selling its invoices (i.e. accounts receivable) to a finance partner like Merchant Factors, who will then collect payment of the invoices directly from the customers of the business.
Factoring gives companies both big and small the opportunity to draw working capital back into the business when it is needed, without having to apply for a bank loan, or give up equity or control. In fact, some businesses make invoice factoring part of their business models so that they can offer their customers favourable credit terms without having to worry about cash flow, chasing customers for money, or spending hours administering the debtors book – an expert factoring company takes care of this on behalf of its clients.
How to qualify for invoice factoring
- If your business meets the following criteria, you could qualify for a fast and flexible invoice factoring solution from Merchant Factors:
- You have an annual turnover of between R1 million to R20 million
- You sell on credit terms not exceeding 120 days
- You deal business-to-business only (i.e. no consumer debt lending)
- You sell on an outright basis, not on consignment or “sale or return”
- You have no sales involving contractual obligations that need to be performed at a future date, such as retentions, progress payments, interim claims or draws (construction businesses are excluded)
If this sounds like your business – invoice factoring is an ideal way to ensure the steady cash flow you need to keep your business operating optimally and your relationships with your suppliers healthy.
For the record – a note about credit scores
It’s important to understand that unlike traditional bank finance or overdraft facilities, your chances of qualifying for a factoring agreement are reliant on the quality of your customer’s credit rather than your company’s own credit score.
This means that any issues with your own credit record will not necessarily affect your chances of factoring your invoices.
We care about the future of your business
Merchant Factors is the only truly independent factoring house in South Africa with over a 30 year track record. This affords us the flexibility to offer our clients the fastest turnaround time in the industry from application to pay-out.
- In addition to accessing the working capital you need as fast as possible, another reason to partner with Merchant Factors is the fact that our debtor administration services save your valuable time.
- Evaluating your clients’ creditworthiness
- Distributing monthly statements
- Calling debtors to chase payments due
- Sending reminders and final demands as and when necessary
- Handling receipting and reconciliations
- Liaising with attorneys if it becomes necessary to institute legal action and collection processes
To find out whether you qualify for our fast, flexible financing solutions – contact Merchant Factors today.
Finance beyond the Numbers.