The importance of understanding Working Capital and how to use it effectively is what sets successful businesses apart from the ones that are failing.

The first step is knowing what is referred to when we talk about working capital.

Working capital is a combination of cash, debtors and inventory.

The cash flow cycle that is put in motion when you decide to put your R1 in a business is the following:

You use your R 1 to buy inventory which is sold to your client on 30-day terms. You like to make profit in your business so you add a 100% profit margin on your products which you sell for R 2. Once the client pays for the R 2 product they purchased last month you can then buy another R 1 stock item and sell it again.

The problem with the above cycle is that your trading capacity is restricted to selling only one R 1 item per month because the cash flow cycle is 30 days. What you need to do is either borrow another R 1 from the bank so that you can sell two R 1 items in a month

OR…

You can shorten the cash flow cycle by turning the R 2 sale into cash immediately so that you can buy another R 1 stock item the next day and the next day and the next day, and sell more and more…

But how do you do this if all your clients are only prepared to pay on 30-day terms?  Surely you have to be paid first in order to get more cash flow?

The answer lies in Invoice Discounting, which is the selling of your debtor invoices today for cash because you don’t want to or cannot wait for your debtor to pay you in 30 – 60 days.

By selling your debtor invoices to Flex Capital, this will immediately put the cash in your business to enable you to increase your trading capacity and ability to buy more inventory to sell, without waiting for debtors to pay you. The cash flow cycle has now been reduced from 30 days to one day, and you have not incurred any debt from the bank.

This is exactly what Integrated Core Group did. As a Flex Capital client for the past 12 months they have utilised our invoice discounting service in a strategic manner to increase their trading capacity and this has resulted in a turnover increase of 226% in the last financial year. The increase in turnover put their business well above break even and their nett profit increased by 192%.

Invoice Discounting is a fast, flexible way to fund your business. Unlike a bank loan that requires to be securitised, the invoices you sell act as the security. It allows you to raise funding in instances where a bank loan is out of reach.

It is important to remember that we do not loan you money and you don’t pay it back. We buy an asset (your debtors invoices) at a discount and we get paid by your Customers. The discount that we withhold at the time of the purchase is our fee for providing the service.

Used strategically, Invoice Discounting can dramatically increase your trading capacity, and your ability to serve more and more customers and far outweighs the cost of the discounting service.