Is your cash flow walking on a tight rope?

Apr 26th 2012, 08:21

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Is your cash flow walking on a tight rope?

Very often an FMCG supplier’s biggest challenge has little to do with the manufacture and delivery of goods. The delay between making a delivery and receiving payment for it is responsible for a great deal of anguish.

Payment terms and invoice compliance associated with retailers can have a crippling effect particularly on small- to medium- suppliers who are heavily dependent on cash flow to fund day-to-day operations and business growth.

While a business may be profitable and have good prospects, potential growth may be inhibited if funds are constantly tied up in a debtor’s book. The business could fail as a result.

In an effort to raise capital and get a quick cash flow injection suppliers often approach banks for a line of credit, or even consider factoring as an alternative but success is limited and can be costly.

While factoring, or taking out a short term loan against an invoice, is one way of obtaining needed funds, admin fees and interest are usually charged from the day these funds are advanced, making costs difficult to control. Ultimately the entire exercise becomes more expensive than anticipated.

Although lines of bank credit and factoring may not be viable alternatives, a full-service trade funding solution that offers Invoice Discounting, like that offered by Cape Town-based Rand Trust, is an option to consider.

The main difference between Invoice Discounting and Factoring is the associated administration and interest fees. With Factoring, these fees are applied from the day funds are advanced, Invoice Discounting, on the other hand, carries a set fee with little or no additional cost.

In terms of Invoice Discounting Rand Trust will advance a supplier up to 75% of the invoice value immediately, once the supplier has presented a signed proof of delivery. Rand Trust essentially provides cash-on-tap to suppliers, with few limits.

Rand Trust will then take responsibility for collecting the supplier’s entire debtors book, retain its discount fee and pay the supplier the balance of the 75% already advanced once all invoices are collected for a given month. Not only will they collect the supplier’s entire debtor’s book, but will also ensure that all invoices conform to each retailer’s exact requirements, helping to ensure that payment is received promptly.

Although Rand Trust offers Invoice Discounting as one of its core businesses, it provides a full-spectrum trade funding and support service useful to any small- to medium- supplier from risk assessment to credit vetting.

Professional trade funding services that offer Invoice Discounting give smaller suppliers the tools to maintain a consistent cash flow and the opportunity for business growth. These services bridge the gap that conventional funding solutions cannot easily cover.

P.S. Look out for this editorial on our editor’s blog.

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