Sometimes, cash is tight when running a business, even when business is booming.
Customers have been placing purchase orders, and you’ve been fulfilling them and sending out the product and invoices. However, you notice that the customers take very long to pay, and your bank account is now empty, unable to purchase supplies for the next batch of orders from new customers. What do you do now?
Of course the easy way out is to tell your new customer: “We don’t have enough cash to make your new products right now”, but then you create a risk of losing business from that customer for the foreseeable future. After all, if you’re an unpredictable vendor, who would want to purchase from you?
So the best option is to find temporary solutions to cover the shortfall, financing to buy the goods, fulfil the purchase order, and then repay the financing. In most cases,, you should be earning more from completing the sale than the cost of the financing.
You need to pay a HKD 100,000 bill to pay your supplier to fulfil your customer’s order. You need to pay right away, or you won’t be able to fulfil on time. You also have HKD 200,000 of invoices that you’re waiting to collect from your other customers in 30 days. And maybe a credit card you could use. So you start thinking of alternative financing options...
You can call your bank, and ask for an overdraft facility. They will likely ask for 3 years of financial statements, and/or collateral and personal guarantees. Also they need up to 8 weeks to process. It’s unlikely you’re going to find suitable financing here especially if you are just starting out.
Using the HKD 200,000 of invoices you are waiting to collect in 30 days, you are able to sell those for cash immediately to invoice factoring providers. There are a number of them here in HK, and how it works is that they’ll purchase your invoice today, and then collect the full amount when 30 days is over. Of course, they won’t give you the full HKD 200,000, because they need to be compensated for the wait, and the risk of not being able to collect.
You sell them a 30-day invoice for HKD 200,000, they will only give you ~80% of the invoice right away (~HKD 160,000). And then up to 16-18% when the invoice is collected. It can also takes more than 2 days for the purchase to be actually approved.
You get HKD 158,000 right away, but you’ll also get HKD 39,211 at the end of the 30 days (IF they collect the invoice on time). It takes maybe 24 hours to get approved.
Doesn’t seem so bad? But the requirements are much higher.
You see similar requirements on Qupital. They no longer advertise their pricing on their website.
Instead of borrowing money to pay upfront the HKD 100,000 to your supplier, what if you deferred the HKD 100,000 payment by around 30 - 60 days? This would have the same effect as selling your invoice due in 30 days. You could do this by paying with a credit card first, and then settle the bill when the statement is due in 30 - 60 days. But this is usually not an option if your vendor doesn’t accept credit cards.
Reap, however, allows your to make that HKD 100,000 payment with a credit card, directly to your vendor, without them needing to do anything (no merchant accounts, credit card terminal, etc). And for your business, it means you have just received a 30 - 60 day payment term. There is a fee of 2.6% - 3.5% depending on which credit card you use, but it’s also paid at the end of the 30 - 60 days.
The payment is also financed instantly, same with any credit card transaction, without needing to wait for approval. And lastly, you will get all the same rewards (travel miles, cash back) as normal spending on credit cards.
For businesses without big invoices (such as food and beverage, retail), without long operating history or without high annual turnover, this can be the best option for them. The downside is, this does require a credit card that is available to be used. However, Reap may be able to provide a credit card solution specifically for SMEs soon. Keep watching our website, or email me at email@example.com for more details.
Lastly, it should be mentioned that the three options are NOT mutually exclusive. You can use a combination or any one of the three. Bank overdraft AND Reap, Invoice factoring AND Bank overdraft, All three, or Only Reap, these are all possible ways to solve your short term cash flow worries.
不以借錢的方式預先向供應商支付100,000港元，你有沒有考慮過可以將這100,000港元的費用延遲30-60日才繳付呢？這個做法與轉售30日後到期的發票效果相同。你可以先用信用卡付款，然後在信用卡的月結單到期時，即30 – 60日後再結清賬單。但倘若你的供應商不接受以信用卡付費，這個方案似乎又不太可行。
但是，透過Reap，你就大可以直接用信用卡向你的供應商支付這100,000港元的費用，他們作為收款人亦不會有額外的協調工作需要做（不用申請商戶賬號或添置信用卡終端機等）。而對你的業務而言，這意味著你剛拿到30 - 60天的付款寬限期。看你使用那一張信用卡，發卡銀行會從中收取2.6％ - 3.5％的費用，但這費用亦只需在30 – 60日後才需要繳付。