Empower business growth through factoring
Many SME owners eagerly anticipate the opportunity for expansion – and rightly so. However, the challenges associated with business growth are often underestimated. Growth does not equate to stability; in fact, often the reverse is true. A central problem is accessing finance. Despite having substantial value on paper – that is, in the debtor’s book – securing a traditional loan or overdraft can prove very difficult. Factoring unlocks this potential with an innovative solution.
What is factoring, and how does it help with growth?
Factoring is a specialised financial service for those in the business to business (B2B) environment. These businesses have clients who place bulk orders, typically on credit terms of 30 to 120 days. The difficulty faced is maintaining cashflow – purchasing inventory and other expenses while waiting for payment. With factoring, a third-party organisation purchases these accounts, giving the business working capital to meet expenses. During periods of growth – where greater expenses often precede income – factoring is thus an ideal solution. This occurs in a wide variety of contexts; some notable examples are outlined below.
Recovery from economic recession
South Africa is currently grappling with the aftermath of an economic recession. In such times, even in growth, experience has shown that SMEs are hit hardest by restrictive lending from banks. Bank credit fails to meet the needs for economic recovery, and even SMEs with stable balance sheets struggle to secure necessary loans, or get them on punitive terms. On the other hand, factoring evaluates your debtors, so securing large clients extends their credit rating to you – allowing for rapid expansion.
Catching the big fish
Who is your ideal client – and what is required to secure them? For an SME pursuing growth, a typical answer would be a big retailer – who requires a huge delivery on extended credit terms. While acquiring such a client may be a breakthrough for your company’s growth, you can very quickly land in deep cashflow trouble. Traditional bank facilities such as overdrafts do not suddenly grow if the turnover of your business does. In contrast, your factoring facility expands in direct proportion to your turnover.
Invest where it counts
Expansion also necessitates new investments in your business. As it becomes larger and more complex, you may require new and more expensive equipment; development of digital capacities; and staff who have the skills to independently drive important tasks within the company. If you are growing quickly and your existing capital cannot cover these investments, trying to secure conventional credit for such numerous and varied expenses can prove difficult, complex and costly. Meanwhile, factoring makes it simple: your increased turnover provides greater access to working capital; you have the freedom to invest it as needed.
Growth is not necessarily linear – that is, simply increasing your existing production and sales. The global economy is interconnected and constantly shifting. Unprecedented technological evolution and access to information can rapidly impact supply and demand (and thus prices) for certain products and services. In short, the value proposition that a business provides may not remain consistent for long.
To grow, businesses should look out for diminishing demands for what they currently supply, and new demands that they can meet. Growth may occur by selling to a different market (such as another country); through different channels (such as online platforms); through providing a new product or service; or a combination of these. Growth in this context requires the ability to adapt, and thus a flexible financing solution. Factoring provides just that.
Why partner with Merchant Factors?
Merchant Factors has been in the industry for over 30 years and has a proven track record of excellence. It has a flat organisational structure, so decision-makers get to know each business and their clients, and provide a personalised, flexible and scalable service unique to your requirements. This experience and hands-on approach positions Merchant Factors to offer the fastest turnaround time in the industry from application to pay-out. This empowers you to seize vital opportunities for growth as they happen.For fast, flexible business finance – contact Merchant Factors today.
Finance beyond the Numbers.