I have a big order from a client however my cash flow is unable to cover the amount for the payment required for the stock upfront. Are there ways to finance this deal without having to sign unlimited surety for the funds required?

finance deal without having to sign unlimited surety for the funds required

Answer / Solution

Question
My business imports materials and distributes it into the local market. We have a potential customer who will purchase from us. But this customer's orders are far too large for our current financial capacity, as we have to pay for the stock on import, and then will only be paid by the client on delivery. What other ways are there for finance this import deal without having to sign unlimited surety for the funds required?

Answer
There are options that you can consider. These include factoring, trade finance or Angel Investors.

Option 1: Debtor Factoring

“The best way to solve this problem is by approaching your bank and arranging debtor factoring. It’s important take into consideration that it isn’t possible to raise any kind of finance without surety. When you apply for Debtor Factoring both parties must be “Blue Chip”, meaning that both parties have a high credit score,” says Kugen Pillay, FNB’s head of Debtor Finance.

Your credit profile is very important

A credit score is how credit grantors determine if they should extend credit to you. “The better the borrower's score, the more likely he is willing and able to repay the loan. “With business failure rates growing every month and tough economic conditions placing immense pressure on the credit lending, it is not possible to borrow money with out surety”, explains Pillay.

What is factoring?

Factoring occurs when a business (the Client) enters into an agreement with another business (the Factor) in terms of which the Client sells its book debts to the Factor, generally on an ongoing basis. The purchase price is usually the value of the invoices representing the book debts, subject to retention to cater for possible bad debts. This retained amount (usually in the region of 20% of the invoice value) is paid to the Client once the Factor recovers the book debts from the debtors. Debtor finance offers access to immediate cash flow advances of up to 80% of fundable debtors. The debtor’s book is the main source of security.

Option 2: Trade Finance

Ashley Mathura, head of Start-ups & Bee at FNB recommends that you consider applying for Trade Finance, which could offer the lifeline you are looking for. Trade Finance plays a crucial role in facilitating international trade. Trade Finance facilities are available to South African importers to enable them to finance imports from abroad on a post-shipment basis. If you would like more details you can call FNB Commercial on  0860 11 22 44.

Negotiate

• Talk to your bank and other commercial banks as well. Negotiate better rates with your bank manager – everything is negotiable, from overdraft interest rates and charges to loan repayment schedules.
• Most banks can help in trade finance area. For example, Standard Bank offer a comprehensive range of commodity and trade financing solutions, including import and export financing, pre-export financing, contract pre-payment, pre-production financing, receivables financing and invoice discounting and working capital.

Option 3: Angel Investors & Private Investment

Business Partners is a specialist investment company who offer debt and equity investment, mentorship and property management for SME’s in South Africa. They only offer finance from R1.3 million. “The business owner could look for an Angel Investor, but they too, will want a return on their investment. Banks are probably the best option. We don’t offer short term finance”, says Petro Bothma, Marketing Coordination, Business Partners. www.businesspartners.co.za

Private companies such as Lombard Insurance offer innovative solutions to raising additional working capital - the lifeblood of any growing business. They can help with regard to insufficient equity and suitable collateral for a business to grow. Lombard’s finance takes the form of:

• Letters of Credit to cover importation
• Payment Guarantees to local and overseas suppliers
• Direct payment to suppliers including advance payments and deposits

For more information call Lombard Insurance on 011 551 0600 or visit: www.lombardins.com/TradeFinance.aspx

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