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A cash advance can be just the boost an SME needs

By Cash Advance No Comments

Does your small business sometimes encounter short-term cash flow issues that can cause major problems? Do you occasionally need extra cash to restock inventory for a busy sales cycle or a large order? Or do you simply need capital to fund expansion, or get through a tough period?

Fact is, most South African SMEs can benefit from increased access to cash at some point, whether to restock inventory or grow the business. That’s why Merchant Capital’s cash advance, which uses a portion of a business’s future POS sales as a source of funding, is often the ideal working capital solution.

We see five major benefits of a cash advance:

They’re unsecured. Unlike bank loans, you don’t have to jump through hoops or pledge any collateral. This reduces your risk when taking out funding for your business. 

They offer a fixed cost of funding. Cash advances don’t work with interest rates that fluctuate together with the markets. From day one, you know exactly how much your business will be paying back. This allows you to prepare your finances and manage your funds.

The repayments are flexible. You don’t get debited a fixed amount every month. Instead, Merchant Capital’s Pay-As-You-Trade lending solution retains an agreed percentage of all future card sales until your advance is fully paid off. This makes repayments simple, manageable and in line with your turnover. You also have the option of daily or weekly debit orders, or split-processing. There are no debit charges on split-processing, which means you can save north of R10 000 in debit order fees over a typical 12-month term.

They’re yours to use as you see fit. You understand your business requirements better than anyone else. So you should use your funding however you choose. Whether it be for expansion, equipment or renovations, it’s your call. No strings attached. 

They deliver high-speed funding. Our application process is all about saving you time and being as quick and seamless as possible. Once approved for an advance, you can expect to see funds in your account within 24 to 48 hours. 

So how can a cash advance be used in your industry?

Building and hardware stores are fairly seasonal. They’re often busier during dryer months, when construction is uninterrupted, and then get quieter over the December holidays when most contractors close. That’s why they appreciate the flexible repayment terms of a cash advance, which ebbs and flows in line with their turnover.

Because they control how they use their funding, our restaurant industry clients use cash advances in several ways. Some use the capital to renovate their restaurants, upgrade their equipment or increase security. Others invest in strategic marketing to attract clients into their space as the worst of the Covid-19 restrictions ease, or use cash advances to smooth out the quiet times between peak seasons.

For clothing stores, a cash advance can be the perfect opportunity to add a new section to your store. By incorporating beauty and personal care products like make-up and toiletries, for example, you can provide your clients with a one-stop-shop. Clothing stores also work with seasons, so summer and winter fashion are year-round factors that you must consider when planning your budget. Budgeting in advance gives you the time to prepare for the upcoming trends.

For electronics stores, change is your only constant. There are constant technological updates to the features of most electronic products, which means there’s always an opportunity to place new products on your shelves to positively affect your bottom line. A cash advance gives you the ability to use those opportunities when they present themselves, allowing you to get ahead of your competitors. This also allows you to take advantage of December gifting and bonus periods – and let’s not forget the incredible power of Black Friday, which can be used as an outlet to clear old stock and boost turnover.

The hair and beauty industry has been one of the hardest hit by Covid-19, due to the level of personal interaction required. We’ve seen many salons use a cash advance to bounce back from challenging times, and set their businesses up for success by taking advantage of holiday periods. Whether offering seasonal commodities like tanning products in the summer, or special packages to incentivise customers and boost turnover, cash advances are helping rejuvenate the industry.

Didn’t find your industry here? Fear not. Click here to see how a Merchant Capital Cash Advance can help you fund your growth. And because our repayments work in line with your turnover, you’ll never find yourself in a position where you’re paying more than what’s coming in. Contact us today.

Dov Girnun is CEO of Merchant Capital, and one of the founding members of SASFA (South African SME Finance Association)

Fair and respectful treatment of clients is critical

By Transparency

Client experience rules the day

We often hear the term “customer experience,” and while it can include a number of elements, essentially it boils down to the perception the customer has of your brand. Those in the customer service industry need to understand that they are also in the customer-experience business and, for the financial sector, this certainly rings true. And part of this customer experience is being truthful, fair and respectful in all customer dealings.

Small businesses want to know that their financial provider has their best interests at heart – whether they are a new or existing customer. The majority of SMEs are largely driven by costs – they need to see the value in a product or service that promises to improve their business offering or financial standing. Therefore, it’s important for credit solution providers to use their position as market experts to inform rather than just sell.

Sales practices need to be done transparently, honestly and fairly. What’s more, finance providers need to ensure that they are giving SMEs as much insight into their products and offerings as they can – demonstrating how they could add value to their business. It is critical that they provide details on what the available products are and how they work – including all fees and charges, how the funding and repayment process works, as well as the total amount should be disclosed in a clear and transparent way to ensure it is easily understood and that the benefits are clear, and in no way misleading. It is also critical that the terms of the contract are explained, as well as finer details such as settlement discounts and contract termination, so ensure that small business owners can make the most informed decision and that the sales people remain respectful of business finance requirements and decisions made.

SME Finance providers also need to ensure compliance with all applicable laws within the South African regulatory framework, including but not limited to privacy, marketing and direct marketing and are not just pushing products, but are rather listening to needs, respecting decisions and very importantly explaining all terms, conditions and requirements in detail and in understandable terms so that SME businesses know what they are agreeing to. The funding that has been provided to the business should be intended to add value and not cause the business to be stuck in a cycle of debt. Every customer should also be treated equally, where creditworthiness is determined based on the business’ credit/debt proposition rather than subjective bias.

However, the fair and ethical treatment of customers goes beyond the sales process, it also needs to extend throughout the contractual period. The SME Finance provider must adhere to the terms of the agreement and, at the same time ensure compliance with all laws and regulations governing their collections practices or mechanisms. The same applies to collections of non-performing loans. In the instance when an account is in default, the SME Finance provider must treat the merchant fairly and make every effort, in good faith, to resolve the issue in a manner that is professional and respectful.

Furthermore, a provider must ensure that customers have a channel available to them to file complaints or raise queries that will be promptly addressed.

With the emergence of non-traditional financial providers providing alternative funding solutions (such as unsecured loans, merchant cash advances, revolving credit facilities etc.) to small businesses given that this is still a relatively new model, the governance, transparency and treatment of customers, needs to be, and should be, regulated. SMEs need to be confident that they are dealing with financial providers where treating customers fairly is central to the corporate culture. They need to know that they will be provided with clear information and kept appropriately informed before, during and after point of sale and that where advice is given, it is suitable and takes account of their circumstances. Lastly, they need to be confident that they will not face unreasonable post-sale barriers to change product, switch providers, submit a claim or make a complaint.

SMEs need the peace of mind that they are engaging with lenders who are committed to providing this transparency and ethical treatment of clients and conforming to best customer experience practices.