Why working capital, not demand, is holding back South African businesses
By Ricco Strydom, Head of Working Capital Solutions & Commercial Property Finance at Merchant West
For many businesses, growth depends less on winning new orders and more on funding inventory and managing cash flow while supplier terms shift underneath them.
Over the past few years, supplier terms have tightened. Where businesses once operated on 60- to 90-day terms, many are now required to settle within 30 days, or even sooner.
Government departments face similar pressure, with outstanding invoices beyond the legally required 30-day window regularly running into billions of rand.
Global shipping disruptions, including vessel diversions around the Cape of Good Hope, are adding further delays and cost to inbound stock.
The result is a growing mismatch between operational needs and available liquidity, with businesses committing capital earlier and for longer to secure inventory.
A business draws down funding as stock is purchased, pays monthly interest, and repays the capital as sales proceeds come in.
The facility is aligned to its own working capital cycle, with a drawdown tenor of up to 180 days, so funding supports real trading activity rather than constraining it.
This is where structured working capital, particularly stock finance, plays a defining role.
Merchants by trade, explorers at heart, we see stock finance as a strategic enabler of growth.
It structures funding around how businesses trade, giving them liquidity over and above supplier terms so they can procure inventory in line with operational needs, independent of cash flow timing.
A common mistake we continue to see is businesses funding long-term working capital needs through short-term unsecured debt. These facilities are quick to access but typically cost more and rarely align with a business’s operating cycle.
Over time, this places pressure on cash flow and margins and can erode long-term sustainability. This pattern is common nationally, with official data reflecting that the average after-tax profit margin across South African businesses is just 1.3%, leaving little room to absorb higher funding costs or input price increases.
Recently, an established manufacturing client had outgrown its bank overdraft, using it to fund inventory as supplier terms shortened and global lead times extended.
Rather than increasing the overdraft or turning to expensive unsecured funding, we restructured its working capital through stock finance and invoice discounting.
Stock finance funded inventory purchases directly, while invoice discounting unlocked cash tied up in receivables, creating a continuous funding cycle.
The result was sufficient working capital throughout the cash conversion cycle, letting the business procure inventory with confidence and strengthen supplier relationships, while improving cash flow and unlocking additional sales opportunities through a more efficient, cost-effective structure.
This transaction reflects a broader principle and one that is an important consideration for owner-managed and mid-market companies.
Sustainable growth depends on structuring the right funding for each stage of the working capital cycle. Businesses must ensure sufficient liquidity at the right time and cost, without overextending balance sheets or diluting equity.
Invoice discounting, as shown above, is often the natural complement to stock finance, funding both sides of the cycle.
The relevance extends across manufacturing, distribution, logistics and wholesale businesses, where funding needs to support the full cycle, from procurement through to sales.
The South African funding landscape is changing. While banks remain important, there is a growing role for specialist, non-bank funders who offer speed and flexibility, with structuring tailored to each business.
As one of the leading independent funders in this space, we understand what it takes to fund a business the way it trades, going beyond traditional funding structures and filling important gaps where flexibility is required.
Average margins across South African businesses sit at just 1.3%. How a business funds its stock now shapes its ability to compete, and whether its funding structure can keep up will decide its growth.
Many businesses already have the demand. Businesses that treat working capital as a lever free up cash to meet this demand and maximise their potential to grow.
Those that don’t spend it chasing stock and suppliers instead of growth, and risk being caught out when the next supplier term shortens or the next shipment is delayed.
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