The Role Of Factoring In The Business Rescue Process

The role of factoring in the business rescue process

A company may find itself in financial trouble due to any number of circumstances. However, given enough time, appropriate guidance, careful management and a sound financing strategy, it is possible to overcome these challenges and become solvent again – with clear benefits for the company’s owners, employees, creditors, shareholders and, ultimately, the local economy.

In South Africa, companies that find themselves in financial distress have an opportunity to reorganise and restructure their affairs by filing for business rescue under Chapter 6 of the Companies Act.

If there is a reasonable prospect of rescuing the company, this Act offers a moratorium on legal actions or liquidation measures against the company. This allows the company to put measures in place, under the guidance of an approved business rescue practitioner, to reduce its debt burden, with the aim of restoring stability and profitability.

However, for companies in business rescue to achieve these goals, they need to keep cash flowing into the business – and this is where business rescue finance comes in. Once a company has commenced with business rescue proceedings, it is possible to apply for business rescue finance (also known as "post-commencement finance") from a reputable and trusted financier.

Factoring - a smart business rescue finance solution

Invoice factoring is a financial strategy used by a wide range of businesses around the globe to unlock working capital quickly by selling accounts receivable to a third-party organisation, known as a "factor". The factor then provides the cash flow injection needed to get the business back on track.

At Merchant Factors, we offer a factoring solution that can be tailored specifically for entities who are already in the business rescue process; and our solutions are designed in line with legislation.

There are many reasons to choose factoring as a business rescue finance solution. One the most attractive benefits is ready access to the cash needed to boost sales, enhance profits and increase margins to improve the credit rating. The business will also be able buy in bulk to access purchasing discounts. Eventually, the business will be in a position to put business expansion plans back into action – with working capital at hand.

The Merchant Factors team will also provide administrative support that will ease the burden on the management team and the business rescue practitioner. Our factoring team will take over the responsibility for collecting payment of the invoices directly from customers, fulfilling a credit control and sales ledger administration role for the business. As a result, there is more time to focus on other strategies and processes to restore stability and profitability over the long term.

Does your company qualify for business rescue finance?

    For a business in business rescue, to qualify for factoring facilities from Merchant Factors, the organisation must:
  • Sell on credit terms not exceeding 120 days
  • Deal business-to-business only (i.e. no consumer debt lending)
  • Sell on an outright basis, not on consignment or "sale or return"
  • Have no sales involving contractual obligations that need to be performed at a future date, such as retentions, progress payments, interim claims or draws (construction businesses will be excluded)
    Once a company enters into an agreement with us to factor its credit sales, the business rescue finance process rolls out as follows:
  • An invoice (is received after receiving a purchase order from the customer and delivering the product or service)
  • The invoice is sent to the customer, and a copy, accompanied by the proof of delivery is sent to Merchant Factors.
  • We pay up to 75% of the invoice value.
  • We collect the total invoice value from your customer on settlement date.
  • Once the customer settles, we pay you balance of 25% of the invoice to the client, less our charges.

Why partner with Merchant Factors?

Merchant Factors is a financial institution founded in 1988 with a specific focus on improving cash flow across a range of industry sectors in South Africa. Drawing on decades of experience, Merchant Factors can provide expert support as a business rescue finance partner.

Our professional credit controllers will administer the debtors ledger, attend to all credit control functions and take care of collections. We ensure that the business is always kept up to speed on all transactions by email, mail or via our 24/7 online portal.

For more information on how our trade finance facilities work; or for more fast, flexible financing solutions – contact Merchant Factors today.

Finance beyond the Numbers.