Cash in on success: why cashflow is business-critical

The availability of cash resources is important to both the short- and long-term health of your company. You may be invoicing impressive sums of money, but until that cash is paid over to you, it can’t keep your business ticking over, fuel its growth, or protect you from the risk of unpaid bills and bad debt.

No matter the size of your organisation, sufficient working capital is the life force of your business.

Why do companies need ready cash?
  • Cash keeps your business operating:
    Without a positive cashflow, how can you invest in the raw materials, stock, transport, electricity and other assets that keep your business ticking over? You may even struggle to pay salaries and rent on your business premises come month-end.
  • Cash is an expansion tool:
    A company can easily stagnate when there’s never enough cash available to fuel growth. You may have the most innovative ideas and ground-breaking expansion strategies, but these are just dreams until you have cash at the ready to put them into action. Developing your business, no matter how conservatively, requires extra capital. Depending on your industry, you’ll need cash to invest in the equipment, employees, technology, infrastructure, retail space or other resources that make growth possible.
  • Cash is critical in a crisis:
    No company is immune from unexpected costs. Will you be sufficiently prepared if a plumbing problem needs an immediate solution, critical equipment breaks down or an unforeseen event damages your stock? These types of emergencies, accidents and failures can eat into your available cash, fast – leaving you with precious little to cover your usual running costs. Maintaining a healthy cashflow is the best way to protect your business against the consequences of meeting expenses that you didn’t initially plan for.
  • Cash keeps you agile:
    Every now and then, a business opportunity comes your way that you weren’t expecting, but you must act on quickly, before your competitors do. Without access to cash, you may not be able to meet your potential new client’s demands fast enough or diversify into a new area of the market when there is a clear gap that you have the expertise to fill. A healthy cashflow gives you more flexibility to grab once-in-a-lifetime chances that come your way or go the extra mile to win that new account.
Cash may well be king, but how can you keep it flowing in?

Your clients are in the same position as you, working hard to keep cash in their business. This means that they’re likely to push for extended invoice payment terms; and these days, many companies wait 30, 60 and sometimes even 90 days to receive the cash that’s owing to them.

While you may trust that you will receive the cash (eventually), every day without working capital can put your firm at risk. For example, manufacturers need cashflow to keep their production lines up and running. A lack of cash could mean missed delivery deadlines, late shipments and unhappy clients – all at a great cost to the bottom line.

Waiting for invoices to be paid may seem like a short-term problem. However, as discussed, this can impact your cashflow and lead to longer-term issues. For many businesses, both locally and abroad, the ideal solution to this challenge is factoring.

Many firms have heard about factoring, but they’re not 100% sure how it works. Essentially, factoring involves selling your accounts receivable to a third-party organisation, known as a “factor”. The factor then provides you with the working capital you need to keep your business operating and growing.

It’s important to note that factoring is not the same as negotiating an early settlement – as the factor collects the payment in accordance with the invoice terms. If you choose not to factor, but rather to ask your client directly for an early payment, this could be viewed as a sign of weakness. They may wonder whether you have the resources to keep your product quality consistent and maintain a healthy business relationship going forward. Furthermore, the cost of early settlement exceeds the cost of factoring.

Why factor?

Factoring is a financial strategy used by a wide range of businesses around the globe – from SMEs to large corporations. Unlike a bank loan, a factoring agreement unlocks working capital quickly, allowing you to mitigate all the risks associated with poor cashflow. Also, as there is no debt, you’re qualified for the funding based on your client’s credit health and not your own.

The factoring team takes over the responsibility of collecting payment of the invoices directly from your clients – acting as a credit controller and administering your sales ledger on your behalf. In addition to providing you with the ready cash you need to grow your business, a factoring agreement also frees up your time, allowing you to spend more time putting your expansion strategies into action.

Improve your cashflow now

Merchant Factors was founded in 1988 to offer growing businesses an alternative to traditional bank loans. We specialise in local and cross-border trade finance; and we’re able to tailor our facilities to suit most emerging small and medium size businesses. Since our inception, we’ve successfully assisted over 2000 businesses in reaching their financial dreams.

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

Access the cashflow you need to meet your business goals – contact Merchant Factors today.

Finance beyond the Numbers.