Cash flow plays a very crucial role in the successful running of a business. A majority of businesses suffer a constant working capital crunch due to their tall stack of unpaid invoices. Although they are sure to get paid, there are insufficient funds at hand that hinder day-to-day operations.
This scenario is seen quite often in Small and Medium-sized Enterprise (SME) Suppliers, who have large corporate buyers. These corporates impose fixed payment terms on the SME Suppliers, usually more than 90 days, leaving the them in a constant state of liquidity peril.
This is where Factoring comes in. Factoring is a ‘receivables’ finance solution through which Suppliers can gain immediate access to liquidity by selling their approved invoices (receivables) well before the payment date, to a third party, at a discounted price.
Factoring can be offered at ‘recourse’ or ‘no recourse’. Factoring at recourse means that the Supplier is liable to pay if the Buyer does not make the payment against the Supplier’s invoices to the concerned bank or financial institution. Factoring at no recourse means the Suppliers will not be held liable for the same.
Let’s take a look at the steps involved in the Factoring process.
- The Factoring provider conducts an assessment of the Supplier’s business to determine if the Supplier is eligible to avail Factoring services.
- Once the assessment is complete, the Supplier can submit unpaid invoices to the Factoring provider.
- The Factoring provider pays the Supplier the value of the invoice immediately, after holding back a fee for the service.
- At the date of maturity, the Factoring provider collects payment from the Buyer against the invoice.
There are a significant number of SME Suppliers in MENA and they make up as much as 90% of the businesses in the region. Often bound by stringent rules and high interest rates to avail Factoring, these SME Suppliers are in need of a flexible liquidity solution that can improve their working capital and keep their operations running smoothly.
With best intentions for these SME Suppliers, Dar Al Tawreeq has launched the InvoiSME program. InvoiSME is a Factoring program crafted for SME Suppliers in the MENA region to avail Sharia-compliant, cost effective working capital solutions. The program, operated on a cloud-based platform, offers Factoring at no recourse and aims to liberate SMEs from their rigid cash flow cycle and increase their potential to expand business horizons.