Working capital finance in South Africa: which option?

What is working capital finance, and when do you need it?

Working capital is the money a business needs to keep trading day to day. It is what pays suppliers and wages before customers pay you. When stock sits on the shelf for 30 days, customers pay in 60 and suppliers want paying in 30, the business has to fund a gap of roughly 60 days from somewhere. Working capital finance is the short-term funding that fills it.

You usually need it for one of three reasons:

• A seasonal or cyclical dip. Costs arrive before the busy season does.
• Slow-paying customers. You have delivered and invoiced, but the cash is 60 or 90 days away.
• Growth. A bigger order means buying more stock and paying more wages before the extra revenue lands. A profitable, growing business can run out of cash precisely because it is growing.

It is not the right tool for buying equipment, property or a business. Those are long-term needs, and funding them with short-term money creates the next cash squeeze. See our guides to business loans and financing an acquisition for those.

What are the main working capital options in South Africa?

• Overdraft. A limit attached to your business cheque account. You pay interest on what you use, usually with a fee for having the facility.
• Revolving credit facility. A committed limit you draw on, repay and redraw as needed, paying interest only on the amount drawn.
• Invoice discounting or factoring. A funder advances a percentage of your unpaid invoices and is repaid when your customer pays.
• Purchase order funding. A funder pays your supplier so you can fulfil a confirmed order before you have the cash to do so.
• Trade finance. Short-term funding tied to imports and exports, such as paying a foreign supplier.
• Short-term loans from alternative lenders. Quick to arrange, often priced higher, and best used sparingly.

What is the difference between an overdraft and a revolving credit facility?

They look similar and behave differently. An overdraft is a flexible limit on your account that the bank can usually review or withdraw, and it can be repayable on demand. That makes it convenient but not dependable: it can shrink at exactly the moment you need it. A revolving credit facility is normally set up as a committed limit for a defined period, drawn and repaid as your cash cycle moves, and priced as a margin over the prime lending rate.

The practical difference is certainty. A committed facility lets you plan, because you know the money is there for the agreed term. An overdraft is easier to get and easier to lose. For businesses with predictable cycles, such as seasonal retailers or contractors who invoice monthly, a revolving facility usually fits better; for a small, occasional timing gap, an overdraft is often enough.

Both are typically priced off prime. At the time of writing, prime is 10.75% following the 24 September 2026 Monetary Policy Committee decision, but check the current rate before relying on that. Businesses with a thinner track record or less security usually pay a larger margin.

When does invoice finance beat a bank facility?

Invoice finance is a different kind of credit. A bank facility assesses your business as a whole; invoice finance assesses your debtors. Funders typically advance around 70–85% of the value of an approved invoice immediately and release the balance, less charges, when your customer pays.

That makes it work in three situations: when your balance sheet is too young or thin for a bank to extend a facility, when sales are growing faster than a fixed limit can follow, and when your customers are large, creditworthy businesses that pay slowly. Because the funding grows with your invoicing, it scales automatically, which an overdraft limit does not.

The trade-off is cost, and the need for tidy administration. Funders look for invoices to other businesses, delivered work and a debtors ledger that reconciles; messy records cause more declines than weak customers do.

What does each option cost? A worked example

This is an illustrative comparison using assumed rates, not a quote. Take a business that needs to fund R1m of working capital for 60 days, with prime at 10.75%.

• Revolving credit at prime + 3% (13.75%). R1,000,000 × 13.75% × 60/365 = R22,603, or about 2.26% of the amount for the 60 days.
• Invoice discounting at prime + 4% (14.75%) with an 80% advance and a 0.5% service fee on the invoice value. On a R1,000,000 invoice the funder advances R800,000. Discount charge: R800,000 × 14.75% × 60/365 = R19,397. Service fee: R5,000. Total R24,397, or about 3.05% of the R800,000 advanced.

Invoice finance costs more per rand, and it advances less than the face value of the invoice. But if a bank will not extend a R1m revolving limit to your business, the comparison is academic. The cost that matters is the cost of the option you can actually get, set against the margin on the sale it allows you to complete. Also note that the discount charge on invoice finance runs on time outstanding, so if customers pay in 90 days rather than 60, the cost rises by half.

Does the National Credit Act apply to business credit?

Often not, but it depends on the borrower and the amount. As we understand section 4 of the Act, it does not apply to credit agreements where the borrower is a juristic person (such as a company) with assets or annual turnover of R1 million or more, and it also excludes “large” agreements, those with a principal debt of R250,000 or more. Smaller facilities to very small borrowers can fall inside the Act, with its disclosure and affordability rules. Check which side of the line your facility is on, and seek legal advice if it matters to you.

Whatever the legal position, expect funders to ask for security. For owner-managed businesses that commonly means a personal surety from the directors, and you should understand what you are signing before you do.

What do funders ask for?

Requirements vary, but the usual list includes:

• Recent business bank statements, commonly six to twelve months.
• Annual financial statements and current management accounts.
• A debtor and creditor ageing report.
• VAT returns and confirmation of SARS standing.
• A cash flow forecast showing how the facility will be drawn and repaid.

It helps to see this from the funder’s seat. A lender is asking three questions: where will the repayment come from, how quickly can the cash cycle turn, and what happens if a major customer pays late. A business that can show a forecast, a reconciled debtors ledger and a spread of customers answers all three, and gets better terms for it.

Which mistakes do businesses make with working capital finance?

• Funding long-term needs with short-term money. Using an overdraft to buy equipment or cover losses turns a timing problem into a permanent one.
• Treating the overdraft as permanent capital. If it never goes back to zero, the business has a funding problem, not a timing one.
• Ignoring the cost of late payers. Each extra 30 days that a customer takes raises your funding cost, so chasing debtors is often the cheapest source of working capital.
• Applying when desperate. Funders price urgency. Arranging a facility while the business is healthy gets better terms than arranging it in a crisis.

If you are not sure which of these fits, the funding finder takes about two minutes and points you to the routes that suit your stage and amount. If you would rather talk it through, tell us about your turnover and payment cycle in the form on this page. A principal reads every enquiry personally.

Sources. South African Reserve Bank repo rate decision of 24 September 2026 and the resulting prime lending rate; National Credit Act 34 of 2005, section 4. The cost comparison is illustrative and uses assumed rates and fees.