Frequently Asked Questions

Client FAQs
1. Is Invoice Factoring Right For Your Small Business?
If your business, like many others, has debtors that pay on terms, you don’t have to be stuck without cash flow. Invoice discounting — where you sell unpaid invoices to a factor and get access to cash immediately — could be the answer to your troubles.

2. The Basics of Invoice Factoring
Factoring is used to gain access to cash when your debtors pay on terms. Instead of waiting 30, 45 or 60 days for a customer to pay, small businesses can sell their invoices to a factor and get the cash needed to grow their business operations or fulfill new orders

3. But how does factoring actually work?
The factoring company will give you 80% to 95% of the face value of the invoice upfront; when the customer pays, the company will send you the reserved money, minus a factoring fee. A normal factoring fee (or discount rate) ranges between 1% and 6% per month. Fees can be accrued daily, weekly, or monthly, so the longer your customer waits to pay, the larger your accrued factoring fee becomes.

4. Discounting example
You sell an invoice valued at R 500 000 to a factor. The factor advances the amount of R 400 000 to you (80% of the invoice value) and keeps R 100 000 on reserve. Your factoring fee is 0.2% per day. Your customer pays after 35 days, so your fee is R 400 000 x 35 x 0.2% = R 28 000. The factor deducts the fee, and sends the remaining R 72 000,to you.

5. What is the difference between Recourse and Non-recourse Factoring?
Invoice discounting is a effective tool to ensure positive cash flow in your business, but what happens if your customer doesn’t pay their invoice? That will depend on whether you have a recourse or non-recourse factoring arrangement:

Recourse: You are entirely responsible for re-purchasing the unpaid invoice.

Non-recourse: The invoice factor is responsible for the unpaid invoice.  Source Growth fund does recourse factoring.

6. What is the difference between Spot Factoring and Contract Factoring

Spot Factoring: You offer the invoice you want to sell to the factor and they choose which invoices they want to buy. Use it as you need it.

Contract Factoring: Where you agree to a long-term contract to sell all of your invoices to a factor. The factor takes over the administration of your debtors book

There are pros and cons to each option. Spot factoring allows your business to factor an invoice without entering into a long-term relationship with the factoring company, once it’s paid the contract comes to an end. Spot Factoring does often involve higher factoring fees.

7. Who offers invoice discounting in South Africa?

Invoice discounting in South Africa has been around for many years. It is offered by a small number of specialist financiers. Each factors product offering differs from the others. Some are more suitable for small businesses and some for larger businesses. Some factors prefer certain industries.

8. What are the advantages and disadvantages of invoice discounting?

The most important advantages of invoice discounting are that it can be implemented quickly and that it can sometimes be the only way for a smaller business to raise finance.

A business’s debtors book is an important asset on its balance sheet which is usually funded by its own capital. When it runs out of working capital, the small business will experience major cash flow problems and may even be liquidated. Invoice discounting can save a small business from disaster.

Invoice discounting is a more expensive way of raising finance than commercial bank funding, but it may often be the only solution. Invoice discounting should therefore be considered when normal bank funding cannot be obtained. From a cost perspective, it is comparable to granting a cash settlement discount to debtors.

9. What is disclosed invoice discounting?

Disclosed invoice discounting refers to the debtor being aware that its supplier has discounted its invoice to a factor.The supplier, debtor and factor work together, so that the debtor’s good credit standing can be used to raise funding for its supplier.Typically the debtor would verify the validity of the invoice to the financier and would also pay the invoice amount directly to the financier on the due date.

Disclosed invoice discounting is ideal for a smaller business with a few large debtors but lacking an established track record itself. It is therefore ideal for start-ups who have been in business for a few months.

10. What are the requirements for invoice discounting?

- The product or service must have been delivered or rendered already;
- The debtor must be satisfied with the product or service;
- The debtor must have a good credit standing; and
- The invoice must have been issued.

11. What are invoice factoring costs?

Invoice factoring costs typically vary between about 1% and 6% per month.Sometimes the costs are fixed for a month, e.g. the cost would be 5% irrespective of the actual time it takes before the debtor pays.In some cases the costs are calculated on the full amount of the invoice and in other cases the costs are calculated only on the portion which is actually advanced to the client.

Sometimes a minimum monthly fee is charged even if no debtors are factored during that month.
Small businesses which are considering invoice factoring should ensure that they understand exactly how and when fees are charged and calculated by potential financiers so that they can make informed decisions.

12. What are the benefits of invoice factoring?

The major benefit of invoice factoring is that an asset on the balance sheet which is sometimes overlooked, i.e. the debtors, can be used to raise finance.
This is especially true if banks are not interested in funding the business because they see it as “too risky”.

In some cases the business may also want to outsource the management of its debtors book to a professional outfit such as a factoring house. Although this usually not cheaper than managing the debtors in-house, it may be more efficient.
Partner FAQs

1. What traits do I need to be successful in the business?
a. This is a people business, so it is crucial that you be comfortable to communicate with people at all levels.

b. Secondly this is financial business, so business knowledge is required. Having owned a small business is a certain benefit. Being a corporate executive with small business interaction is also beneficial. People with experience in banking, lending, accounting, business consultants and financial advisors do well in this business.

2. What are the risks in this business?
There is always a degree risk when there is reward. The success lies in how the risk is managed. The risk management process we use at SGF has been trialed and tested and has been refined over years of doing business. The SGF system relies on detailed due diligence before we enter into any transaction. This process enables us to work in a controlled environment when managing the risk.

3. What happens if a customer doesn’t pay?

Although this is the exception rather than the rule, it does happen from time to time. Before we undertake any transaction we always complete the appropriate due diligence. We operate on a recourse basis with our clients and it always stays the responsibility of the client to take care of the payment. This will happen either by re-purchase of the unpaid invoice or through an exchange mechanism that we have developed. Either way licensees will always earn their discount.

4. Where do I get my clients?
Most of our clients come from referrals. We establish lead sources and these would typically be accounts, business bankers, business brokers and happy clients. This is covered during the training and we also work with you in the area of your business to establish these lead sources.

5. How about repeat business?
Our clients stay anything from 6 months to 2 years.

6. How much money do I need to get started in this business, and what will it be used for?

We encourage all licensees to start in a ‘modest’ way as this is a business where you benefit from learning as you go. We recommend around R1-2 million initial working capital over and above the license fee. You will then add to this as your comfort, experience, and client levels grow. You will need a telephone and a computer to get started. You will need to put petrol in your car to visit clients as they DO NOT come to you – this facilitates a home-based business environment. Your other cash flow requirements will be a limited amount that you choose to invest in marketing – probably a maximum of R2 000 -R10 000 to get started.

7. How quickly can I get started?
Once you make the decision to go forward, you will sign the license agreement and pay your license fee. Approximately one week later you will receive your Operations Manual. This is a very comprehensive set of manuals covering the A to Z of SGF and our operations.

As part of your self-directed training we require that you study, review and absorb some of this material. Formal Training at our Training Center is scheduled on a monthly basis, and then following that a senior SGF executive comes to your location for Field Training to visit possible referral sources. At the end of that training period, you are ‘open for business’.

Total time from signing the agreement to being ‘open’ is in the range of 4-8 weeks.”

8. How do you assist me?

From a ‘getting started’ point of view, there is the training and marketing assistance that we have already discussed. However, it is important to remember that training never ends. We provide a personalized coaching program, transaction guidance and review, to name just a few areas. We strive to provide whatever assistance you need to make your license successful.

9. Do I get a territory?

We do not award licenses in territories since for every R3 mil you have available to purchase invoices, you are looking at 2-3 clients. It also means that you can do business anywhere and the country and thus move anywhere and take your business along.

10. Are there regular meetings or other forms of interaction for licensees?

We maintain contact via corporate telephone, emails, and newsletters. Our Licensee Conference is designed to broaden industry and company knowledge and give licensees the opportunity to meet and network with other SGF licensees, as well as the SGF management team.

11. What do you mean by sense of community?
This is a license that thrives on interaction between licensees and the licensor. Just because you happen to be a lone licensee in a particular area, you should not think of yourself as operating in a vacuum. You, in fact, are part of a team that is interested in you, your ideas, your suggestions, and your needs.

12. OK, what do I do next?

We invite you to complete our License Information Request form as that would help us to evaluate a potential fit. Should you have any questions or concerns about the License Information Request form or its contents, email me at After receipt, review, and acceptance of your information, we will provide you with our Disclosure Document.
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