Fintech and the future of factoring

As a small company that has battled to access working capital in the past, you may be wondering whether fintech is the business finance solution you’ve been looking for.

What is fintech?

In recent years, fintech has become a frequently used term in financial services. It refers to companies that provide or facilitate financial services through innovative technology.

Finance is a key component of every company’s business activity. Worldwide, many small to medium-sized enterprises (SMEs) struggle to access the working capital they need to grow their business. According to the International Financial Corporation (IFC), a funding gap of more than $2 trillion exists for small businesses in emerging markets alone.

There are many reasons for this. The finances of SMEs are characterized by high complexity, yet they are low scale. For traditional lenders such as banks, extending credit to small businesses is often too costly, given the small loan size. Further, driven by regulation, banks have reduced their exposure to smaller businesses in recent years. These challenges have given rise to fintech as an alternative funding model.

Can fintech bridge the finance gap?

Fintech is already shifting the ways financial services are being offered, promising to provide access to underserved markets in new ways.

Key fintech innovations include:

  • Peer-to-peer lending
  • E-commerce finance
  • Online supply chain finance
  • Online trade finance
  • Invoice finance

What does this mean for the factoring market?

Recently, fintech firms have begun to offer factoring as a digital service. Some factoring platforms have emerged that:

  • Allow companies to upload their accounts receivable (invoices)
  • Check the authenticity of these invoices
  • Offer a suite of investors the opportunity to fund the business against its invoices

Essentially, these fintech platforms are turning invoice finance into a peer-to-peer funding or even crowd funding service. In this case, it’s important to note that the fintech provider does not provide the working capital, but rather the platform for accessing this finance from other investors.

While this certainly lowers the barriers to finance, it may also drive up the cost of factoring. In many cases these fintech companies simply offer high-interest loans that use your receivables as collateral.

And even when fintech factoring services are offered at competitive rates, there is no added value in the form of personalised, professional business support. Many of these fintech firms are start-ups. This means they’re cash-conscious and are likely to automate their services to save time and money. And when investors buy your invoices and handle debtor administration themselves, you may be handing over a relationship with your client to an unknown third party.

Get the benefits of fintech, with added advantages

Merchant Factors was founded 30 years ago to provide growing businesses with an alternative to traditional bank loans and overdrafts.

As the leading independent factoring specialist in South Africa, this forward-thinking firm takes advantage of modern technologies to offer most of the benefits of fintech – but with more experience, more flexibility and a more personal approach.

As part of any factoring facility, Merchant Factors offers expert debtor administration and credit control services that add immense value to your business. The team quickly develops relationships with your customers, explaining the positive benefits of factoring – such as the fact that it is often used to fund business growth. And all debtor administration is conducted transparently. Merchant Factors’ online platform keeps you informed 24/7 through clear, comprehensive sales and related management information.

If you’re looking for a factoring solution that supports your financial goals and nurtures your customer relationships, then Merchant Factors is the smart choice.

For fast, flexible business finance – contact Merchant Factors today

Finance beyond the Numbers.