FACTORING TRADE FINANCE BRIDGING FINANCE

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1 FACTORING TRADE FINANCE BRIDGING FINANCE

2 Who is Merchant Factors? Merchant Factors was founded in 1998 by our CEO, Johnny Philippou. It had become quite evident at the time that most South African financial institutions had not taken into account the specific cash-flow requirements of rapidly expanding businesses. Bank loans and overdrafts were, and are still, very restrictive and have a general lack of flexibility. This really shaped our vision to become the preferred financing alternative to traditional banking. Today we are one of the leading factoring and trade finance institutions in the country, employing over 70 professional staff and servicing clients in a broad range of industries. We offer local and cross-border financing, and are able to tailor our facilities to suit most emerging small and medium-sized businesses. We are as comfortable servicing clients with a turnover of R100,000 per month as we are with those generating a monthly turnover of R15,000,000. Merchant Factors is not a division of a banking group. Our independence and flat organisational structure allows us the fastest turnaround time in the industry from application to pay-out.

3 FACTORING The most effective way of ensuring the flow of working capital is through factoring. Even though over R25 billion is factored in South Africa each year, it s still relatively unfamiliar to many business owners. Any business that provides payment terms on the products or services it provides, may find that cash flow is a problem. Factoring works by what we call discounting the trade receivables. Merchant Factors basically purchases the invoices from your business and advances 75% of the value upon presentation of invoices and proof of delivery. The remaining 25% of the invoice (less our cost) is paid over to your business as soon as your client has effected payment to Merchant Factors. The advantages are clear - as our client you have the benefit of receiving funds as soon as invoicing occurs whilst your client continues to enjoy the benefits of 30 or 60 day terms. Merchant Factors and Working Capital Solutions? In a nutshell, we are a specialist financial institution with a focus on providing businesses with highly innovative Working Capital Solutions that ensure the flow of cash at the times when it is most needed. This is done primarily through, what is generally known as factoring or debtor finance. We also offer the flexibility of stock or trade finance and have the ability to facilitate bridging transactions. How does Factoring work in practice? As soon as goods are delivered or services are rendered, as our client, you raise invoices as you would in the ordinary course of events. The main difference now being that as soon as the invoice is processed Merchant Factors provides up to 75% of the invoice s value to your business in cash. Our professional team of credit controllers then administer your business s sales ledger on your behalf. The benefits of this working capital solution are numerous: Cash for expansion Super-swift turnaround time and no red tape Increased margins Improved credit rating 24/7 access to the real-time status of the business s debtor s book via the Merchant Factors Web-site A more competitive position for you in the marketplace. Assistance in minimising bad debts Expansion with sacrificing equity

4 TRADE OR STOCK FINANCE What are the costs associated with factoring? Merchant Factors charges an administration fee plus a discount or interest rate which is agreed with your business upfront depending on how the service is structured, the volumes of invoices and the overall credit worthiness of the customer base: The interest rate ranges from between 2.0% and 3.0% above the prime lending rate on funds that have been advanced until the invoice is settled by your customers. The administrative fee ranges from 0.5% to 2.5% Won t these administrative charges and interest rates erode my margins further? Aside from the obvious benefits of releasing cash tied up in the debtor s book earlier, many of our clients off-set the cost of factoring by: taking settlement discounts from their suppliers, paying creditors cash on delivery and negotiating as much as a 5.0% discount on purchases. What are the qualifying criteria for Factoring? Sales on credit terms not exceeding 120 days. Deal exclusively business-to-business (if debtors are individuals or sole proprietors, they will be excluded). Turnover of R per month or good prospects to grow should you extend credit terms to customers. Trade finance is an invaluable, asset backed facility for any business that is in a growth cycle. Many of Merchant Factor s clients use trade finance when they want to increase stock levels. This occurs when the business is experience high volumes of turnover or when an imminent pricing increase justifies larger orders. The facility enables the business to increase its working capital by funding the operational cycle (i.e. from the time payment is made to a supplier until receipt of funds from customers), thereby leaving internal funds free to be employed in other areas such as sales and marketing. Generally the duration of a trade finance agreement is short term and sits over and above any conventional banking finance. The facility enables the business to purchase stock on the premise that the debt is settled at a date which falls in line with the businesses ordinary working capital cycle. This means that repayment only occurs once the business has had time to take receipt of the goods, to on-sell them and to ultimately collect the cash from the sale or through the debtor created by the sale. Merchant Factors build a strong business relationship with all trade finance clients to ensure accurate monthly financial reporting. Benefits of trade or stock finance Increase in sales and profits. Purchasing advantages by being able to buy in larger quantities. Purchase discounts through prompt payment of suppliers (discounts and increased profits should more than offset our charges). Improved standing with suppliers and customers. Increased margins. Improved credit rating. More efficient deployment of resources and management time Reduced overheads. Improved return on capital. Expansion without loss of equity or control

5 BRIDGING FINANCE Bridging Finance is a form of financing, used to maintain liquidity while waiting for an anticipated and reasonably expected cash inflow. Commonly bridging finance is provided for short periods of time (not exceeding a period nine months). Essentially our bridging finance solutions assists you in accessing funds that may only be due to you in the near future. What is required when requesting bridging finance and how it works? A prospective client will need to submit: Most recent Audited Financial Accounts Most recent Management Accounts Current debtors age analysis Current creditors age analysis The reason for the bridging transaction and to whom the funds will be paid The source of the funds for repayment of the loan Details of the asset (usually property) being offered as collateral for the loan. This would ordinarily be provided by the owner of the asset along with a copy of the bond statement where applicable and a most recent asset valuation document. The financial service provider ordinarily verifies the value of any asset offered as collateral prior to concluding the transaction Every situation is unique. The amount and term of the loan along with other factors all figure into the structure of a bridging transaction loan. The professional team at Merchant Factors will help to tailor a bridging transaction to suit your requirements. How it works You notify us of the details concerning payment to your supplier. Subject to pre-arranged terms, we allow a credit period for payment of up to 120 or 180 days after shipment. Payment is generally made to us by bills of exchange accepted by you.

6 FACTORING TRADE FINANCE BRIDGING FINANCE CAPE TOWN: HEAD OFFICE 4th Floor, Merchant Place 55 Loop Street Cape Town, 8001 P O Box 749, Cape Town, 8000, RSA Tel: Fax: GAUTENG: Penthouse 6, 3rd Floor Thebe House 166 Jan Smuts Ave Rosebank, 2196 PO Box 2802, Houghton, 2041, RSA Tel: Fax: KWAZULU-NATAL: Kelly Group House, Ground Floor 39 Florida Road Durban, 4001 P O Box 78121, Avondale, 4101, RSA Tel: Fax :