Rand Trust has been assisting SME companies improve cash flow by lending against assets since 1958; deals are specifically tailor made and bespoke to each client’s specific requirements.
Cash flow is one of the greatest challenges facing small to medium enterprises in South Africa and indicators are that this trend will continue for the foreseeable future. It’s of fundamental importance that business owners manage their cash flow cycles in an effective and efficient manner. The business cash flow cycle can be expressed as the number of days it takes R1.00 of cash in the business to convert back to cash after having being invested in stock, work in progress and debtors.
A global trend has emerged that more companies are making use of invoice financing to accelerate their cash flow position. Invoice financing is a financial transaction whereby a business sells its accounts receivable (i.e. invoices) to a third party (called a funder) at a discount, the funder provides financing to the seller of the accounts in the form of a cash "advance," often 70-80% of the purchase price of the accounts, with the balance of the purchase price being paid, net of the funders discount fee, upon collection from the account client.
With Small and Medium Enterprises (SMEs) representing approximately 50% of South Africa’s GDP and roughly 60% of the workforce, it’s become a strategic imperative that these businesses are aware of the funding alternatives available to them.
Fresh statistics indicate that the total worldwide volume for Invoice financing increased sharply over the past 24 months with South Africa showing a spectacular 41% growth.
The benefits of Invoice financing are:
- Uncapped consistent cash flow – As your term sales grow so does your access to additional funds, unlike commercial banks where your access to finance is capped unless you able to provide an enormous amount of security.
- Improved cash flow enables you to provide greater credit terms to your clients.
- Upfront capital enables you to secure early settlement discounts from suppliers to offset costs and boost profits, which enables business growth.
- By outsourcing your debtor collections, you free up resources that can be deployed in other areas of your business to enhance overall efficiency.
- Business or personal assets are not always required as additional security if your accounts receivable and payable are in good standing, the company produces acceptable margins and a valid proof of delivery process exists.
- Invoice financing allows for flexible borrowing because you decide which invoices to convert into instant cash as and when the need arises.
Rand Trust has helped numerous businesses reach their full potential:
In 2010, an SME in the transport industry had a debtors’ book with an approximate value of R750,000. By gaining access to “cash on tap” the company was able to take advantage of several strategic opportunities. Today it’s a large, successful business with a total exposure to Rand Trust of R41m, comprising of both invoice discounting and trade finance.
In 2009, an SME importer had a debtors’ book with an approximate value of R4.8 million and gained access to uncapped funding lines, since then it has grown into a household name with a debtor’s book value in the region of R34m.
An SME in the steel industry joined Rand Trust just over a year ago with a debtor’s book of approximately R3m. Having access to improved cash flow enabled it to purchase a second foundry, today the book value is in the region of R6m.
An SME in the labour broking industry joined Rand Trust just over eight months ago with a debtors’ book value of approximately R1.6m. By realizing its growth aspirations and expanding its geographical footprint, the company’s debtors’ book has grown to R2.8m.