Getting Started With Modern Working Capital Techniques

Like everything a potential user of a new system wants to know”

“What will this cost?” . . . . . and

“What is the procedure involved?”

The Two Elements of Cost

1. The usual financing interest
2. The validation Service Fee

Interest

We all know that when we are going to use finance there is always a Interest charge. That is also the case when we want to raise Working Capital from the Invoices we address to Buyers or from the Invoices sellers have addressed to you.

In the case of Invoice Finance the Financier starts his Interest clock from the day the finance is granted to the applicant until the day the Buyer pays the invoice, so closing out the transaction.

As we can see this is a reasonable approach by any Financier.

The question then raised is “What is the Rate the Financier will charge?”

The Interest Rate will vary from Financier to Financier, but usually the rate will be quoted at, say “Prime + 2% (whatever).

Now the logic in considering the Interest Rate is this:

• If I take up the value of the money due to me, usually up to 80% of invoice value, will I be able to use this money profitably?”
• The answer is yes, you can use this money to pay your accounts early and so pick up Early Settlement Discounts – you will be able to pay your wages on time – you will be able to purchase the requisites that you need to keep your business ticking over – you will be able to take “Drawings” to pay your rent/bond, to to house, feed, clothe and educate your family – so there are many ways you will score by using Modern Working Capital Techniques!

The Validation Service Fee

The validation service is what makes the raising of the Working Capital possible because there is something better than the old ‘promise to pay’ statement in obsolete Financial Instruments.

What is better than that?

Well, in this new digital world using Modern Working Capital Techniques what effectively happens that an invoice becomes confirmed, that it is genuine, that it is scheduled for payment on a specific future date to the credit of a specific bank account (that can be controlled by a Financier) and that is a far better procedure than the old manual methods.

Therefore we can understand that Validation Fee indeed covers a very valuable financial service! – If one is financing an invoice of R10 000 would you mind paying R55 so that you could have access to this invoice value almost straight away? – No one would mind that!

The Procedure Involved

1. We have to see that the applicant business will really benefit from using the system therefore we need to know: The Company/businesses name: Its Shareholder’s and Director’s names: The nature of the enterprise – This information will be required by Modern Working Capital Techniques and its service provider and also by the Financier that will be funding the project.
2. The Financier will be looking for a list of names of the invoices he will be asked to finance.
3. The Financier will also be requiring the applicant’s banking details so that he can credit the correct bank account with the Working Capital raised.
4. A covering ‘Agreement/Contract’ will be required the Applicant and and the Financier.
5. A Service Agreement will be required by Modern Working Capital Techniques.

In due course a template will be drawn up that the Applicant can used in order to streamline the procedure.

If one has any further questions in this regards simply contact the writer below: