Factoring Insights

Trade finance in South Africa: finding the right finance partner

Companies involved in local or foreign trade often need trade or stock finance to fund the operational cycle. This is because these companies must first pay suppliers for stock and raw materials before producing their goods and selling these to customers. Only once their customers pay, does cash flow back into these businesses.

There’s often a significant lag between paying suppliers and receiving cash from customers. This can be further delayed if customers ask for credit terms of 60, 90 or even 120 days. Without working capital flowing in, business growth is simply not a possibility.

What is trade finance?

Trade finance in South Africa is an asset-backed funding mechanism that enables a business to purchase stock and fund the operational cycle, without having to dig into cash reserves that are required for other day-to-day expenses such as salaries, rent and equipment maintenance.

This funding is typically accessed as a layer of short-term finance over and above traditional bank loans or overdrafts. This provides businesses with the funds to purchase additional stock in order to develop new product lines, increase sales or explore other avenues for growth – without risking a cash flow crisis.

The role of trade finance in South Africa

South Africa’s economy is contracting. According to a recent press statement by Statistics South Africa, our country’s gross domestic product (GDP) growth rate during the first quarter of 2017 was -0,7%. In this environment, it’s crucial for policymakers and players in the business finance industry to find ways to support companies that are involved in trade – because they play a pivotal role in the country’s economic growth.

Unfortunately, trade has been sluggish in recent months. In the statement, it’s noted that the “largest negative contributor to growth in GDP in the first quarter was the trade, catering and accommodation industry, which decreased by 5,9% and contributed -0,8 of a percentage point to GDP growth.”

With the industry struggling, there is clearly a need for more trade finance in South Africa. However, the country and African continent as a whole is facing a widening trade finance gap.

Access to trade finance in South Africa is an issue for SMEs

Data from the ICC Banking Commission suggests a massive trade finance gap in Africa, which sits somewhere between USD 110 billion and USD 120 billion. According to the Commission, this is largely due to banks being more risk averse as regulatory pressures intensify. In this environment, it can be difficult for smaller businesses to obtain bank loans, overdrafts and other finance mechanisms.

Fortunately, Merchant Factors – an independent provider or trade finance on South Africa – is able to play a role in bridging this funding gap.

Looking for tailored trade finance in South Africa?

Merchant Factors specialises in supporting businesses big and small through their unique operational cycles, as well as their periods of growth, by providing tailored stock and trade finance in South Africa.

Established in 1988 to offer companies an alternative to red-tape-ridden bank loans and overdrafts, Merchant Factors carefully develops trade and stock finance facilities to suit your company's working capital cycle. Whether you’re procuring locally or importing products, Merchant Factors designs each facility to allow you sufficient time to receive goods, sell them, and collect the cash from the sale or through the debtor created as a result of the sale.

    Once you have applied for Merchant Factors trade finance and entered into a contract with them, the process works as follows:
  • Provide Merchant Factors with the details concerning payment to your supplier
  • Merchant Factors draws up a letter of credit or arranges for payment to be made directly to your supplier
  • Subject to pre-arranged terms, Merchant Factors allows a credit period for payment of up to 180 days after shipment
    Merchant Factors trade finance solutions offer your business the following benefits:
  • Increase your profitability:
    Access more stock to boost sales of existing product lines or develop new ones.
  • Capitalise on purchasing advantages:
    With capital to purchase stock in larger quantities, you could benefit from economies of scale or receive purchase discounts through prompt payment of suppliers.
  • Be more agile:
    You have funds available for special opportunities, emergencies and seasonal peaks – and costs are only incurred when you use this facility.

For fast, flexible trade and stock finance solutions – contact Merchant Factors today.

Finance beyond the Numbers.