The value of having credit-worthy customers

Many business owners lose sleep agonising over their credit scores – which can be a major obstacle when applying for finance. A blip in your company’s credit record, even based on an issue that was resolved years ago, may affect your ability to access a bank loan or overdraft facility.

Fortunately, traditional bank finance is not the only lifeline available to businesses in need of working capital. Factoring, a funding strategy used by enterprises of all sizes in South Africa and abroad, focuses on your customers’ creditworthiness rather than your own.

This means that you can move beyond worrying about your own credit score. It also means that you need to have a sound due diligence process in place, for both new and existing customers, to ensure that you only sell on credit terms to those customers who are willing and able to pay on time, and in full.

How factoring works

Most businesses that trade with other businesses sell their products or services on credit. If you’re such a company, you may experience months where there’s very little cash flowing into your business. Waiting months and months for your customers to pay can leave you with insufficient funds to cover your day-to-day expenses. This is a risky position to be in; and one that is not conducive to growth at all.

Factoring gives you the ability to draw cash back into your business before your customers pay, by unlocking the working capital that is tied up in your outstanding debtor balances. This is such a fast and flexible way to enhance your cash flow and continue growing your business, without having to sacrifice equity or control.

You also avoid having to jump through endless hoops to secure finance from the banks, which often takes so long that it doesn’t match the needs of your unique operational cycle at all.

Are your customers credit-worthy?

The more credit-worthy your customers are, the more value you will derive from a factoring agreement. But you don’t need to handle all the due diligence on your own.

Merchant Factors provides a comprehensive debtors’ book administration and collection service as part of a factoring agreement. Trained professionals on the Merchant Factors team also manage credit control, conducting detailed credit checks and assessing credit limits with access to a range of leading databases, including Merchant Factors’ own. This helps companies to identify high risk debtors early, and prevent losses and bad debts from crippling the business.

    This expert service includes:

  • Opening new debtors’ accounts
  • Checking the completion of credit application forms
  • Performing the necessary credit checks and assessing credit limits
  • Sending reminder letters and final demands where necessary and as guided by clients
  • Verifying deliveries as an after-sales service
  • Assisting in the settling of disputed accounts and liaising with attorneys when accounts are handed over (in consultation with clients)

Merchant Factors always keeps companies well-informed of all assessments and transactions by means of clear, comprehensive sales and related management information. This is shared by email, in hard copy or via an online portal that is available around the clock.

Finance that grows with your business

With Merchant Factors, your finance agreement is based on your turnover rather than the value of bricks and mortar. This means that your business model or expansion plans are not limited by an inflexible overdraft cap or loan amount. Rather, your access to working capital grows as your revenue increases.

The danger of not choosing a scalable funding approach is that your business could outgrow your loan amount, once again plunging you into a cash flow crisis. With factoring, your finance matches your operational cycle and your unique business needs.

Why Merchant Factors?

Merchant Factors was founded in 1988 to offer growing businesses an alternative to traditional bank loans. The firm is a leader in local and cross-border finance; and is able to tailor its facilities to suit most emerging small and medium size businesses. Since its inception, Merchant Factors has supported over 2000 growing companies.

As the only truly independent debtor finance institution in South Africa, Merchant Factors can offer the shortest turnaround time in the industry from application to pay-out, in addition to comprehensive debtor administration services.

For fast, flexible finance – contact Merchant Factors today

Finance beyond the Numbers.