Asset-based finance, a term used to describe funding against a range of balance sheet assets including invoices, is a well-established and fast-growing financing strategy that is used by businesses on a global scale.
In the UK, for example, organisations are increasingly opting for asset-based finance to fund new business initiatives and growth opportunities. Many companies use this financing strategy to supplement more traditional types of finance such as overdrafts and loans.
According to research conducted by the Asset Based Finance Association (ABFA), the amount of asset-based finance provided to companies in the UK reached a record high of £22.2 billion in 2016. This represents a healthy 13% year-on-year increase.1
The Association reports that last year, 80% of asset-based finance was derived from invoice finance, which involves businesses securing funding against their unpaid invoices. During 2016, the capital unlocked through invoice finance accounted for £17.9 billion of overall funding provided to businesses in the UK.
Commenting on the findings, Chief Executive of the ABFA Jeff Longhurst noted that invoice finance and other methods of asset based finance is ideal for both SMEs and larger businesses.
“All sizes of UK businesses need to be aware of the possibilities and opportunities that asset based finance can provide them beyond what traditional sources can often offer them,” Mr Longhurst commented.
Invoice finance in South Africa
Factoring, a form of invoice finance that provides working capital against debtor balances outstanding, is a financial strategy used by a wide range of businesses in South Africa, including both SMEs and larger corporations.
Also known as “accounts receivable financing”, factoring involves a business selling its invoices to a third-party finance provider, known as a “factor”. This gives the business access to much-needed working capital – funds that are already owing to the business – in order to meet daily expenses as well as continue with growth initiatives that may have been put on hold while waiting out lengthy invoice payment terms.
The factor then takes over the responsibility of collecting payment of the invoices directly from the business’s clients, acting as a credit controller and administering the sales ledger on the business’s behalf.
The advantages of factoring
- When you choose the right finance partner, invoice factoring unlocks many benefits:
- There’s no need to wait out lengthy invoice payment terms of 30, 60, 90 or even 120 days.
- You can grow your business and generate profits instead of wasting time chasing invoice payments.
- You’re able to minimise your risk of bad debt and thus build better relationships with suppliers and other stakeholders
- Without compromising equity or control, you have the freedom to expand your business.
- Due to having the ready cash to buy in larger quantities, you can capitalise on purchase advantages.
- You can also pay suppliers promptly and be eligible for purchase discounts.
There is little doubt that these advantages are attractive. However, it’s important to choose the right business finance provider, who can offer you a comprehensive invoice factoring service that is backed by in-depth industry expertise.
Why choose Merchant Factors?
Merchant Factors was founded in 1988 to offer asset-based finance to growing businesses as an alternative to (or supplementary to) traditional bank loans and overdrafts. Today, we’re a well-established yet fully independent debtor finance institution that specialises in local and cross-border trade finance.
Two important characteristics of our business model are innovation and flexibility; and we can tailor our facilities to suit the requirements of most enterprises. Since our inception, we’ve successfully assisted over 2,000 businesses in achieving their unique financial goals.
- In addition to unlocking working capital, Merchant Factors offers comprehensive debtor administration services that include:
- Performing the necessary credit checks on new and existing debtors;
- Sending reminder letters and final demands where necessary;
- Verifying deliveries as an after-sales service;
- and liaising with attorneys should disputed accounts need to be handed over.
All these services are handled in line with our clients’ requirements – and no action is taken independently of your guidance.
Most importantly, we pride ourselves on the fact that Merchant Factors can offer you the fastest turnaround time in the industry from application to pay-out. This is made possible by our position as the only truly independent debtor finance institution in South Africa.
With more enterprises around the world accessing invoice finance, now is the time to explore this innovative and rewarding business finance option. Contact Merchant Factors today.
Finance beyond the Numbers.