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How to Access Working Capital

Unlock your business’s growth potential through debtor finance.




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Click here to download the full "Debtor Finance" article (PDF 224kb)

The term ‘factoring’ has long been a dirty word in business. Connotations of companies that are fighting to stay alive and business owners who have sold their souls to financiers have resulted in this valuable tool often being overlooked. But South Africa’s four main banks are working hard to change this perception. They offer debtor finance as a critical tool in achieving real business growth. Here’s who should be considering this product – and how it works.

Working capital isn’t only the lifeblood of a business, it’s at the heart of real business growth. A company with a strong balance sheet and positive profits often doesn’t have access to cash because it’s tied up in 30- or 60-day client invoices, and this means no cash flow to support growth. Imagine you could have access to 80% of your debtors book today to fund immediate growth. With debtor financing you can. Be warned though — this is not a facility for businesses in debt that are desperate for an injection of funds. It’s a means for companies to access the cash owed to them by clients.

Indeed, while factoring has previously had a poor stigma attached to it, confidential ‘invoice discounting’, as debtor finance is often referred to, is aimed at growing, well managed and profitable concerns that have good debtor books. “It is widely used internationally, particularly in the US, Canada, Australia and the UK and the South African market has grown in excess of 20% year-on-year for the past three years,” says David Cory, head: debtor management, Nedbank Business Banking.

What is debtor financing?

Factoring, as debtor financing has historically been called, is a system where a bank purchases a company’s debtor book, which details all the debts resulting from the supply of goods and services. This excludes money owed by private individuals, loan repayments that are due to the business, or debts that are in any way conditional on further performance. Depending on the value of the book and expected growth of the company, as well as the company’s financial management and invoicing systems, up to 80% of the value of debts may be advanced. The balance is retained to cover contingencies such as returned goods or situations where an invoice is disputed or a customer defaults on payment. The outstanding percentage is paid to the business once the original invoice is settled in full.

There are a number of debtor financing products available, but the two main products will be either disclosed or non-disclosed. In non-disclosed invoice discounting, the client sells their debtor book to the bank, but this arrangement is not disclosed to the client’s own customers.

Who qualifies for debtor finance?

Debtor financing is available to businesses in almost any field. To qualify you must have:

  • Repeat orders from your customers
  • Credit terms not exceeding 120 days
  • Debtors of sound financial standing
  • Few or no trade-related disputes

To secure a debtor finance facility you have to sell and cede your debtors to the bank, as well as sign an agreement with a stipulated notice period.

The bank also requires factoring warranties from the active directors or members, and suretyships from the shareholders and members.

Certain transactions are not covered:

  • Sales and payments on a progress or retention basis, for example in the building and construction industry
  • Sales to private individuals
  • Sales based on terms less than 14 days
  • Information technology software and licensing transactions
  • Sales on a consignment or return basis
  • Sales executed as an agent or through an agency arrangement

Who is debtor financing for?

According to Mark Seland, head of debtor finance at Standard Bank, there are three core categories of business owners who should consider debtor finance:

  • Business owners who have products or services that are bought on credit or have funds tied up in unpaid sales invoices
  • Business owners who need to raise additional working capital to finance business growth
  • Business owners whose cash flow prevents them from paying creditors promptly, and as a result lose early payment discounts or are charged with interest.

“The purpose of debtor financing is to unlock value against an idle asset,” explains Seland. “If cash is locked up in invoices, a business is inhibited from taking on extra work because it takes money to develop, manufacture and produce products.

“We actually refer to our debtor financing products as ‘working capital solutions’ for this very reason,” says Bobby Malabie, chief executive: Absa Business Bank. “The value of this solution lies not only in optimising our clients’ working capital requirements, but also in releasing the working capital tied up in inventory or debtors, which could be better employed elsewhere — most notably to take advantage of early settlement discounts, capital investments and for balance sheet optimisation.”

This means the product is predominantly for businesses that are growing rapidly, or businesses that don’t have strong balance sheets or security to offer for normal banking facilities. These could be companies that, due to past good performance, have secured significant contracts, but will require cash to fund their operations and fulfil their obligations under these contracts.

Malabie also says that the average quality of debtors should be good, there should be a fair spread of debtors, with no single debtor constituting more than one third of the book, and all debtors should offer repeat business.

Nedbank Business Banking’s Cory describes debtor financing as ideal for companies that have a mismatch between their debtor and creditor payments. “We fund our clients’ working capital by purchasing and advancing up to 80% of the value of a company’s debtor book. This enables our clients to negotiate better supplier discounts, increase their profitability and grow their business,” he explains, adding that debtor financing typically excludes inter-company and associated debt, private individuals, foreign debt without insurance cover, debt over term (in excess of 120 days from invoice) and any debt that is subject to a legal dispute.

Why is debtor finance an option for businesses?

“Let’s take a business that has been funding its own growth for a few years and has entered a stage in its lifecycle where it has secured good contracts and requires additional working capital. In order to gear the business for this growth phase, the debtor finance solution provides the client with an opportunity to fund additional working requirements,” says Michael Naidoo, head of special finance and transactional banking at FNB. “Throughout the growth phase business owners put all profits back into the business to fund the growth, which increases the equity on their balance sheet, but they still cannot fully leverage their growing debtor book, as the company’s financials don’t meet the capital requirements of an overdraft. This presents the opportunity for the business owner to avail of a debtor finance facility. The owner would need to have a viable business, good financial management and good corporate governance with their eye on future growth.”


Overdraft facilities vs debtor finance

A debtor finance facility is similar to an overdraft, except that the limit is not fixed but is determined by the value of the debts owed to the business. “Unlike the rigid constraints of an overdraft, debtor finance keeps pace with your sales growth, which means you can use as much or as little as you need without affecting equity or control of your business,” says Seland.

Mature companies have historically chosen overdraft facilities over debtor financing. According to Seland, less than 1% of financing in South Africa is debtor finance, and this is largely because of the aforementioned reputation that factoring is used by businesses that are about to fail. “We are changing this perception of debtor finance, and moving towards a point where companies can choose between debtor financing or an overdraft facility based not on perceptions, but rather the needs of the business,” he says.

These needs are simple: how much cash does the business have access to, and how much does it need? “A mature business that has strong cash flow and an overdraft facility but never uses it doesn’t really need to look at debtor financing,” says Seland. “On the other hand, if you utilise 100% of your facility each month and your overdraft is actually insufficient to cater for business growth, debtor finance might be exactly what you need.

Ask yourself the following questions to ascertain whether your business would be better off using debtor finance:

  • Is the growth of your business hampered by insufficient capital?
  • Is cash flow affected by delayed payments from debtors?
  • Are you forced to grant more discounts to debtors to encourage early payment/settlement?
  • Are you able to secure extended credit terms with your suppliers?
  • Are you spending more time and resources on debt collection than sales and business growth?
  • Are you looking for a more flexible way of financing your business?

“The point of any financing product is to match the business’s needs with the right product,” Seland explains. “Debtor financing can be used to fuel a growth phase, during which time the business can be recapitalised (even though it would qualify for a more traditional bank lending product) as it provides immediate access to cash as and when required because the facility is linked to the turnover of the business.”

The facility also helps businesses access more cash than an overdraft facility would allow. For example, a freight forwarder and clearer needs to draw cash twice a month, before its own invoices are paid. The facility is needed for only a few days, but those few days mark the difference between the ability to clear products or not. Similarly, companies that deal in commodities would have the ability to buy when prices are right, rather than when their cash flow allows it.

“Clients can use their debtors book to get an overdraft facility, but banks will only lend up to 25% or 30% of the value of that book,” explains Cory. “With an overdraft facility, the bank is carrying a higher risk. We can unlock up to 80% of the book through debtor financing because we assess each debtor and are generally assured of repayment on the book. If a company goes into liquidation and the book has been sold to a factor, those debts are paid before anything else is taken by the liquidator. Because we would have the proof of delivery and the invoice, the level of dispute is far less.”


How debtor financing works

Debtor financing is based on a strong bank/client relationship. Simply put, the bank needs to know that the facility it is extending to its client is safe, and to do that it needs to understand the business, how it works and how well its financial systems are managed.

Paying such close attention to a business can also be highly beneficial to the business client. “First, understanding the business allows us to take a future view of where the company is going. If we assume that sales and equity will grow, we can align the facility with the growth,” says Kuben Pillay, head of sales for debtor finance, FNB Commercial Banking.

Because debtor financing is also more flexible than a traditional overdraft facility, it can grow with the debtor book — or shrink accordingly. If a debtor does not pay its invoices, the facility will be withdrawn for that debtor alone. The entire facility is not frozen because of a bad debt. Instead, the debtor is simply removed from the book that the bank has purchased.

“In debtor financing, the key is to have good debtors, to deliver on time and to be paid by them,” says Pillay. This means that good credit control, governance and financial management practices are essential. “If you are not invoicing your clients correctly and do not have the proper documentation, they won’t pay you in the event of a dispute,” he says. Because strong financial management systems are so important, the bank will evaluate the client’s systems to ensure that they can generate the information the bank requires. However, it will also assist its clients by advising them what is required and what needs to be done. “We need to be comfortable with a client’s financial management before we can extend them a facility worth up to 80% of their book,” says Pillay. “But we aren’t leaving them to do it alone. We get involved, we do monthly audits and we assist them in identifying and rectifying any weak spots.”

And what are the fees, you ask? Good question. Although there are a number of different debtor financing products available and you would need to speak to your bank about your specific needs, there are three main fees attached to this facility. The first is straight interest, charged on a daily basis. A facility that is used for only a few days is therefore cheaper than one used for a month. It’s all in how quickly the debtor invoices are paid. The second fee is a straight facility fee, and the final fee is a management fee.

“The debtor finance facility is set up in the same bank account as the client’s usual business account,” explains Pillay. “The account is in the business’s name, so its debtors do not realise that the book has been ceded to a bank, and the facility is placed in that account and can be drawn from there. Debtors then pay their invoices back into that account as well.”

Management fees are based on a number of things. First, as previously stipulated, the financial management systems of clients need to be audited, debtors are evaluated and, most importantly, the facility needs to be available as and when clients need it. “Our clients use this facility because they need access to cash,” says Seland. “If we cannot provide that when they need it, the system won’t work.’

Additional benefits of debtor finance

The high growth potential of debtor financing aside, there are more immediate benefits to using debtor financing. “The purpose of debtor financing is not to get you into debt, but rather to assist your business through the high growth phase where traditional working capital facilities are not suitable,” explains Pillay. “Interest is only charged on what you use, and for how long it is used, but having that facility allows you to get settlement discounts from your own suppliers. Many companies offer between 2,5% and 7% settlement discounts if you pay them early. The interest and fees you pay to access the facility should be less than what you save simply through being able to settle your own debts early.”

Access to cash allows commodities to be bought at the right prices, and is particularly useful for businesses in the import, export, clearing and freight forwarding sectors, where large fees need to be paid before invoices are settled.

Businesses that have boom periods and quiet periods would also benefit from debtor financing with the combination of stock financing because they have access to cash flow during their quiet months. “Anything that is seasonally-based, either locally or in oversees markets, can benefit from invoice discounting,” agrees Pillay.

“Finally, you are free from the worries associated with day-to-day cash flow management and can focus your efforts on growing your sales and improving profit,” concludes Seland.

Debtor finance providers




Invoice Discounting

Invoice discounting grants a client access to working capital through discounting debtors on a continuous basis.
The facility is undisclosed to the client’s debtors and is repaid by the debtors in the normal course of business. The facility is with recourse, which means the client remains liable for any uncollected debt.

Full Service Factoring

Full service factoring allows a client to obtain access to working capital against the security of its debtors. The facility is offered in combination with a comprehensive credit management and debtor accounting package, which saves the client on administration, and improves the client’s risk management. The facility is disclosed to the client’s debtors. The facility can be offered without recourse, in which event full reliance is placed on the debtor to repay.

Export Factoring

Export factoring creates liquidity for South African businesses doing business offshore. The facility can unlock up to 80% of new export sales, provided that these debtors have been insured by a reputable credit insurer.

Procurement Finance

Procurement finance reverses the traditional factoring process. Instead of presenting invoices to a bank, the client presents its invoices to a corporate debtor (for example a retailer or a mine) which validates the invoice (ie. confirms that the goods/services have been delivered and the invoice is due for payment). Validation makes the invoice more valuable, as Absa will be prepared to advance cash (the invoice value minus credit/handling charge) on the back of the validation. An important benefit of procurement finance is that the credit decision recognises the client’s contract with the corporate debtor, allowing clients to meet traditional credit criteria to obtain funding. The corporate debtor also benefits, as extended creditor payment days remain intact, thus allowing for cash preservation.

Selective Invoice Discounting

Under selective invoice discounting, selected pre-approved invoices are sold to Absa to release funds and improve cash flow. The product makes few administrative demands on clients as there is no stream of invoices being offered (as is the case with traditional debtor finance products), with the result that there is no need to forward monthly data to Absa.  The product is suited to clients with high value, low volume invoices.

More Information

For more information contact Absa Working Capital Solutions on +27 (0)11 846 1108 or email



Debtor Finance

As a facility, Debtor Finance improves a client’s cash flow for immediate business growth. FNB’s Debtor Finance product offers a non-disclosed, working capital facility designed to afford cash flow acceleration against the security of the client’s debtor’s book.


Stock Finance

Stock Finance is also offered with Debtor Finance, where it provides a larger credit facility using a client’s stock as collateral.


Commodity Finance

FNB Debtor Finance recently introduced commodity finance. This product allows commodities to be funded at higher margins than the traditional debtors stock finance facility.


Export Finance

Through the Export Finance model the bank will fund companies trading with international debtors. FNB ensures that the financial management of the client’s business is in order through assistance in systems, management and the rating of the client’s debtors.


Selective Invoice Finance

Selective Invoice Finance allows the client to free up funds with only selective debtors being leveraged. This is all about invoice level financing, where either selected invoices or all invoices for selected preapproved debtors are sold to the bank to release funds and improve cash flow. The availability of this additional cash flow can determine the success of the client’s business.


More Information

For more information, contact Debtor Finance via email to or call 0860 263 362.



Invoice Discounting

This is a confidential product for clients who run a reasonably sophisticated accounting system. Nedbank purchases approved debtors and funds up to 80%. When the debtors pay, the 20% is refunded back to the client. The bank receives the offer for invoices electronically from the client, invoicing and statements are sent out by the client and there is no reference to the bank’s involvement. Debtors pay proceeds into a Nedbank Deposit account opened on behalf of the client.

The bank carries out a monthly audit to ensure that the client’s debtor book is an exact replication of that which they have sold to the bank electronically. The bank’s target market is clients who generate turnover in excess of R1,5 million per month. Target markets are the clearing and forwarding, manufacturing, retail, textile and clothing industries.


This is a similar product to invoice discounting, however it differs in that it is a disclosed product with statements and invoices reflecting Nedbank’s name. The bank collects funds and sends out the monthly statements.

The product is aimed at smaller or less sophisticated companies, which may have reasonably sound debtor books, but wish to avail of debtor funding to assist their working capital. The bank also targets companies that simply wish to outsource their debtor collection and monthly administration as factoring clients.

Single Invoice Discounts

Here the bank purchases good quality single debtors from its clients. The product is designed to grow companies that might ordinarily battle to secure bank funding. It is a disclosed product and a useful means of financing BEE companies, panel beaters and under-capitalised entities with excellent debtors.


Export Factoring

Nedbank is a member of Factor Chain International (FCI). This association links 65 countries and 201 factors worldwide.

Nedbank purchases export invoices once the FCI correspondent has approved the debtor and funds up to 80% in the currency of the invoice. Once the debtor pays, the bank refunds the 20% to its client. Benefits to the client are that enquiries or disputes can be fast-tracked and resolved easier as the bank has a foreign correspondent available who understands the foreign language, legal system and customs applicable.

The product also enables local clients to sell on open account without worrying about a letter of credit.  Additionally 80% of the transaction is sheltered from currency fluctuations as these funds are paid at approval to the South African exporter.

More Information

For more information email

Standard Bank


Non-disclosed Debtor Finance

With this option, full confidentiality is maintained and third parties are not aware that the client is using debtor finance. The bank advances up to 80% of the value of approved financeable debts to the client in cash, with the remaining balance being made available when debtors pay the outstanding invoices.

Clients administer their own debtors, who continue to make payments directly into their account. The bank conducts regular reviews of its clients’ internal administrative controls and procedures and charges a fixed monthly service fee as well as interest on the amount advanced.

Disclosed Debtor Finance

As with non-disclosed debtor finance, the bank advances up to 80% of the value of the approved financeable debts to the client in cash, with the remaining balance being made available when debtors pay outstanding invoices. However, with this financing option, the bank also provides a computerised debtors’ administration and collection service. This includes sending out monthly debtor statements, and conducting collections and debtor reconciliations.

The bank also investigates all present and future debtors to establish their creditworthiness and trade limits. Debtor collections are deposited directly into an account controlled by the bank and management, and credit control information is provided daily, weekly or monthly. The bank charges an administration fee based on a percentage of the gross value of the invoices, as well as interest on the amount advanced.

Export Debtor Finance

Similar to the disclosed debtor finance option, the bank advances up to 80% of the value of an agreed insured debtor limit in cash. The remaining cash is made available once debtors settle their outstanding invoices. However, with this financing option, the debtor must be underwritten by a reputable insurance company. The cash advance can be made in South African rands or in the foreign currency invoiced amount. An administration fee is charged based on a percentage of the gross value of the invoices as well as interest on the amount advanced.

More Information

  • Contact your account executive or a business banker at a branch near you, or call one of the following numbers:
  • Johannesburg: +27 (0)11 636 3223
  • Cape Town: +27 (0)21 401 2112
  • Durban: +27 (0)31 374 1356
  • Eastern Cape: +27 (0)43 721 1053
  • Visit for more information

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

How to Guides

Making Money Online: 10 South African Entrepreneurs Doing It

You don’t need an eight-to-five job or stacks of capital as the launch-pad to start a business and create your own source of income. Here are 10 entrepreneurs who’ve found some unconventional ways of making money online using common platforms.

Diana Albertyn



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How to Guides

Fintech And Small Business Success: 5 Tips For SA’s Fintech Start-ups

Let’s look at what the future holds and how small businesses can benefit.

Colin Timmis




Around the world, the fintech revolution is disrupting our relationship with money, both in our personal and business lives. This global market is expected to be worth $10,499m by the end of 2018 – and digital payments account for much of this growth. This means it’s an exciting time for small businesses looking to get ahead. Whether they’re fintech developers, users or both, these businesses are putting new technologies to work and benefitting hugely.

South Africa’s small business community, like elsewhere, is embracing fintech with enthusiasm. To make the most of  this energy, new incubators and accelerators are setting up shop across the country. Cape Town, for example, hosted its first ‘Startupbootcamp’ which focused on creating scalable technology solutions for financial services and related industries. At Xero, we recently launched a virtual hackathon to enable South Africa’s technology entrepreneurs to compete with other forward-thinking developers on a global scale.

Against an energetic business landscape, fintech presents an attractive market for SA’s budding entrepreneurs. In today’s competitive business environment, new technologies are key to meeting your target audience’s needs and expectations.

So, how can entrepreneurs take advantage of what fintech promises? Let’s look at what the future holds and how small businesses can benefit.

Think smart, grow fast

The range of available fintech solutions and tools is vast. However, new technologies alone are not enough to get your business off the ground – and keep it there. Here are five tried and tested tips for small business owners to keep in mind at all times.

Related: Fintech: Fusing Finance And Technology

1. Have an idea

Entrepreneurs first need an idea, then a plan supported by realistic goals. Your idea has to be good: ask yourself what you’re going to sell, and why. Once inspiration has struck, subject your idea to some hard scrutiny. Chances are someone else is already doing something similar – which is fine if you can do it better.

2. Build a plan

Your business plan is your map. It will help you launch your idea with structure and thought, and guide your company’s progression. You don’t need to stick to your plan like glue: Flexibility is certainly a virtue. A new twist or turn – as long as it’s on the right track – could take the business forward faster.

3. Be flexible

Of course, if something isn’t working then don’t be afraid to abandon it and move on. Fear of failure often results in entrepreneurs throwing good money after bad. Know when to scrap an idea, take what you’ve learnt and focus on something new. Remember, there’s no point crying over sunk costs.

4. Stay alert

When it comes to new ideas, look at what’s old and needs refreshing. Keep a constant eye out for ways to disrupt the status quo and offer people a better way of getting what they need. Even if your business is running smoothly and doing well, if you don’t stay alert, you could lose out on some low-hanging fruit to a competitor.

5. Use technology

Startups are typically constrained by limited resources – namely time, money and labour. A solid plan will help allocate your resources effectively. Fintech solutions can provide a strong backbone that helps you enhance your capacity, manage your cash flow better and improve productivity.

Related: 6 Lessons The Founders Of iKhokha Used To Launch An African Fintech Start-up

The future of fintech in SA

South Africa is fertile ground for fintech. A lack of legacy infrastructure – particularly in outer lying areas – has created a large underbanked rural population hungry for financial services. What’s more, a growing urban middle class is demanding more sophisticated solutions to outdated forms of payment processing.

Fortunately, these demands are not falling on deaf ears. The local tech community is part of a dynamic development ecosystem that is working hard to innovate tools that provide greater financial access. With a clear gap in the market and an eager target audience, the future for fintech developers and users in SA is looking stronger than ever before.

Regardless of what your business offers, where it is based, it’s size or age, it’s time to join the fintech revolution. By embracing relevant solutions, your business will become more agile, efficient, responsive and ultimately, more successful.

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How to Guides

Loan Scams: How To Protect Yourself From Loan Scams

My thoughts are that only if there is a grassroots movement by people affected by these scams to get rid of these unscrupulous marketers, will there be any chance of change.




The current economic situation we’re experiencing in South Africa has created a strong appetite for credit. Often consumers need to borrow money out of desperation just to help them survive. It is here where scam artists and unscrupulous marketers prey on the public, signing them up for services they do not need, with monthly debit orders adding to their woes.

It’s a tactic that we’re seeing more of these days: A company advertises that they can help you secure a loan, even if you’re blacklisted. They charge you for this ‘service’ and at the same time sign you up for a bundle of monthly paid-for add-ons, hidden away in the Terms and Conditions (T&Cs).

They are doing this despite the fact that it is illegal to advertise loans to those who are blacklisted (according to the National Credit Act), and that a company cannot charge to facilitate a loan (according to National Credit Regulator [NCR]). To make matters worse, in 99% of cases, the applicant is turned down, and now has to continue paying for services that they were unaware of signing up for in the first place.

Related: The Definitive List Of South African Business Incubators For Start-Ups

This is criminal behaviour, but for some reason it does not get acted on by relevant authorities (such as the NCR) which should be protecting consumers. With an estimated one million South Africans being preyed upon like this annually, those who are tasked with watching over the consumer should not shake this responsibility. That’s not to say the marketing industry is blameless – far from it, but without a regulatory body, there’s very little to be done to act on these rogue companies. Even Google benefits from these loan scammers – just type in “bad credit loans” and see how many ads pop into the paid search results.

My advice would be for consumers to be vigilant in managing their financial affairs, especially when it comes to “too good to be believed” offers. Here are some pointers to help consumers protect themselves:

  • Never give your bank details to an unknown brand or marketing company that is not your own bank or insurance company.
  • ALWAYS read the Terms and Conditions before signing up for anything. Most of these scams work because the extras you sign up for are buried in the T&Cs, making them part of the contract.
  • Never agree to pay someone to find you a loan. The service provider is conducting an illegal act, since they cannot charge consumers for loan finding services according to the NCR.
  • As difficult as it can be, do not apply for loans if you are blacklisted as there is little chance you will qualify. These scams are run by people who feed off/take advantage of people’s desperation, so rather speak to your bank to get advice about your situation.
  • Sites such as Hellopeter are a great resource to check if companies are offering fraudulent services. It will only take a few minutes, but could save you years of problems.

As for what to do if you have fallen victim to these scams, complain in writing to the Credit Ombudsman ( as soon as possible. At this stage, we’ve lost faith in the NCR or the Consumer Protection Act stopping these types of scams. Rather get in touch with Carte Blanche, your local or national newspaper, and note it on Twitter and Facebook. My thoughts are that only if there is a grassroots movement by people affected by these scams to get rid of these unscrupulous marketers, will there be any chance of change.

Related: Seed Capital Funding For South African Start-Up Businesses

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