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Working Capital in South Africa 2026: The 11 Sources, What They Cost & How to Get Approved

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Working Capital in South Africa 2026: The 11 Sources, What They Cost & How to Get Approved

Part 4 of 7  ·  Choice and cost

How Do I Choose the Right Instrument — and What Does It Really Cost?

Match the instrument to the shape and duration of the gap. Then convert every quote to a true annualised rate before you compare anything.

Part 4 of 757% through the guide

Match the instrument to the situation
Your situation Right instrument Wrong instrument
Customers pay at 60–120 days and you cannot wait Invoice discounting or factoring Term loan — the debt outlives the problem
You have won an order bigger than you can fund Purchase order funding Overdraft, which is unlikely to be large enough
You are short in the same week every month Overdraft or revolving facility Repeated short-term advances at escalating cost
Seasonal stock build ahead of a peak Short-term facility or trade credit aligned to the season Long-term debt still being repaid in the off-season
You need equipment but cannot spare the cash Asset finance or sale-and-leaseback Drawing down working capital to buy outright
Card takings are strong but lumpy Merchant cash advance for a short, defined purpose Merchant advance as ongoing operating funding
A step change in scale after a contract award Term loan or SEDFA facility, planned months ahead Emergency short-term money at crisis pricing
You are structurally loss-making Restructure, reprice, cut cost Any form of debt

Section 9Why does faster money cost more?

Figure 5Speed against cost across the main products
SLOW AND CHEAPFAST AND EXPENSIVESuppliercreditSEDFAESDBankoverdraftTermloanAssetfinanceInvoicediscountingPOfundingFintechMerchantadvanceSPEED OF ACCESS →COST →No product is cheap, fast and undemanding at once.The same business paying 48% annualised for emergency money could have paid prime plus 3% had it arranged a facility three months earlier.

Indicative positioning only. The practical lesson is planning.

Section 10How do I work out what a facility really costs?

Figure 6Converting any quote to a true annualised cost
QUOTED ASEXAMPLETRUE ANNUALISED COSTMonthly discount rate2.5% per month on the advance≈ 30%Monthly discount rate3.5% per month on the advance≈ 42%Factor rate1.25 on R100 000 over 6 months≈ 100%Flat once-off fee4% on a 60-day facility≈ 24%Flat once-off fee6% on a 90-day facility≈ 24%Margin over primePrime + 4%, prime at 10.50%14.50%Settlement discount forgone2.5% for day 10 instead of day 30≈ 45%Factor rates make expensive facilities look cheap because they hide the repayment period. Always ask for the all-in rand cost in writing.

Then ask every funder, in writing, for the total rand cost of the facility over its life — including initiation, administration, legal, valuation and early-settlement charges — and compare that single number rather than the headline rate.

Section 11Worked example: discounting a R500,000 invoice

Figure 7Discounting a R500,000 invoice
DISCOUNTING A R500 000 INVOICE AT 80% ADVANCE, 2.5% PER MONTHINVOICE VALUER500 000SPLITR400 000 advanced within daysR100 000 heldON SETTLEMENT AT DAY 75R75 000 releasedR25 000 cost5% of invoice value, or roughly 30% annualised on the amount advancedIs that expensive? It depends entirely on what the R400 000 does.Funding a second contract at a 25% gross margin earns R100 000 on money that cost R25 000. Covering overheads while you wait earns nothing.

The business receives R400,000 within days of invoicing and R75,000 on settlement, at a total cost of R25,000.

Is that expensive? It depends entirely on what the R400,000 does. If it funds a second contract earning a 25 per cent gross margin, the business earns R100,000 of gross profit on money that cost R25,000 — a clearly positive decision. If it simply covers overheads while the business waits, the R25,000 is a pure cost and the correct answer was to negotiate better terms or reduce the cost base.

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