Small and medium-sized enterprises (SMEs) are rightly acknowledged among the main drivers of economic growth and employment in nearly all countries. One of their main challenges, however, is working capital. SMEs often require access to short-term financing for their very survival and to fuel their growth across all stages of their life cycle.

As bank loans have become more difficult to obtain, particularly across the MENA region after the credit crunch in 2008, and lending remains constrained for this segment, SMEs are in a tough position. Due to the tight credit environment, SMEs must seek alternative financing solutions to meet their financing needs.

One such option is factoring, which is the process where a company sells its accounts receivables (invoices) at a discount to a third party (factor), in return for immediate cash. The factor pays about 80 to 85 per cent of the invoice value immediately, and the balance invoice amount is paid back upon receipt of funds from the counter party. The discounted amount is then absorbed by the factor as a fee for its services. SMEs can increase their cash flow through factoring, especially when working capital is low and money is needed urgently for business growth or for taking care of increased orders.

Factoring is experiencing phenomenal growth internationally and is becoming an important source of short-term working capital for small and medium-size enterprises (SMEs) and other businesses. Although the relative contribution of factoring varies across countries, it is especially important in the developing countries. Factoring is also playing a big role in the area of cross-border trade, where businesses in developed economies are able to facilitate liquidity to their suppliers in emerging markets.

As per the world factoring statistics published by FCI in May 2018, global factoring volume has reached 2,598 billion euro in 2017, showing a 9% increase worldwide. The growth statistics prove that factoring is becoming an increasingly important and universally accepted tool for generating working capital and meeting the financial needs of not only SMEs, but also larger companies looking for alternatives.

InvoiSME – a factoring program by Dar Al Tawreeq

Considering the financing needs of SMEs, Dar Al Tawreeq offers InvoiSME program, a cost effective, Sharia-compliant working capital solution for SME suppliers, which is made available through a streamlined online platform.