Does factoring affect customer relationships?

SMEs in South Africa and abroad use factoring to improve their liquidity ratios and keep their business finances healthy. Factoring is a form of debtor finance that involves a company selling its invoices to a third party (a factoring company) to improve cash flow and ensure ready access to the working capital required for growth.

When a business makes a credit sale, payment is normally due within a pre-determined period, typically 30, 60, 90 or even 120 days. With a factoring contract in place, the organisation does not have to wait for months to receive cash against the sale. Rather, it can access funds immediately – to fund daily operations, pay salaries, cover rent and fuel growth.

However, converting sales into cash is just the beginning. When handled by an expert factoring company, this approach to business finance also enables companies to cut complexity in the back office.

Factoring saves time and resources

Many companies choose factoring over bank finance due to the extensive support that reputable factoring companies provide in the areas of credit control and debtor administration.

When a business enters a factoring agreement with Merchant Factors – a financial institution that has been providing working capital solutions to growing businesses for almost 30 years – Merchant Factors acts as the company’s accounts and credit control department.

    The services provided by Merchant Factors include:

  • Opening of new debtors’ accounts
  • Performing debtor credit checks and assessing credit limits using intelligence gained from Experian, ITC and the Merchant Factors database
  • Sending reminder letters and final demands where necessary
  • Verifying deliveries as an after sales service
  • Banking receipts and allocating payments made according to remittance advices received from debtors
  • Assisting in settling of disputed accounts

How this benefits business

Many smaller businesses do not have the capacity, skills or budget to handle these processes effectively and successfully in-house. With Merchant Factors handling credit control and debtor administration, the business does not need to acquire or retain these sought-after (and therefore costly) skills.

Beyond saving time and money, the business owner also avoids having to deal with overdue invoices or disputed accounts personally, which is a huge relief. These types of interactions can be stressful and place strain on the good relationships that the business has built with its customers. Merchant Factors acts as a buffer between the business and its clients in this regard.

Does factoring impact customer relationships?

Some businesses are concerned about how their clients will react when Merchant Factors begins dealing with them.

Merchant Factors understands that healthy customer relationships form the bedrock of any business strategy. In today’s competitive commercial landscape, the customer experience can be the difference between maintaining and losing a business relationship.

To this end, Merchant Factors handles credit control with the utmost respect and professionalism. A team of highly-skilled and experienced credit control professionals will quickly develop relationships with the company’s customers, ensuring efficient collection of monies owed – in a way that reflects well on the company.

Merchant Factors also helps to explain its involvement and correct any misconceptions that a company’s customers may have. Factoring is a well-established business finance strategy that is used by many companies in South Africa and internationally. Over R25 billion in turnover is factored by South African businesses each year – helping to fund growth and keep businesses healthy during seasonal fluctuations in demand.

It’s also important to note that factoring does not require an SME to relinquish control of any important customer or business decisions. Should it be necessary for Merchant Factors to issue a final demand, for example, it will only do so in conjunction with the company. Existing clients often use Merchant Factor’s disciplines as an “excuse” thus avoiding any negative impact on their relationship with the debtor!

Why Merchant Factors?

Merchant Factors was established in 1988 to offer growing businesses with an alternative to traditional bank finance. Since its inception, Merchant Factors has provided financial and professional support to over 2,000 organisations, enabling them to keep their business strategies on track.

Also, as the only truly independent debtor finance institution in South Africa, Merchant Factors offers businesses the shortest turnaround time in the industry from application to pay-out.

For fast, flexible finance – contact Merchant Factors

Finance beyond the Numbers.