Why Manufacturers are Paying for Success Twice
On August 31st, many manufacturers will face a bitter irony: paying provisional tax on profits they haven’t yet made. They’ve funded the front end on jobs: raw materials, labour, time, and energy, and then have to wait 60 to 90 days for the back end of invoice settlements. Their profit isn't speculative; it'll just sit in someone else's back pocket for months, while SARS is chomping at the bit for their slice of the pie.
It’s a rough deal.
While the gap between execution and settlement is predictable standard practise, external volatility is making it heavier to carry. Diesel prices have surged 50.8% since last year, another R1.38 per litre hike in August, and transport inflation has hit 12.7%, a leap above the consumer inflation rate of 5%. Manufacturers are stuck having to fulfil yesterday’s promises with a more expensive reality today.
The price of pessimism
Pessimism due to macroeconomic forces is understandable. South Africa’s PMI (Purchasing Managers' Index – an economic indicator that measures the health of the manufacturing and services sector) dipped to 46.8 in July (the scale measures 0-100, with a score below 50 indicating decline). It’s easy to look at that and think that rationing is in order, but it’s more nuanced than that. Business activity actually rose for the second month in a row. The weakness sat mostly on the export side, following the United States raising its tariff on South African goods to 12.5% in late July. Local demand is recovering, but many manufacturers are being forced to run stocks down simply because their cash is locked in a 90-day payment cycle.
The danger of a cash squeeze isn’t today’s bills; it’s the impact on future turnover coming from having to decline opportunities because you can’t front the costs. A job turned down in August because of July’s balance sheet doesn't return in November; it moves on to a competitor.
Balancing the scales
You’ve got to spend money to make money; that’s just how business goes. Success comes from a good balance of cost-to-return ratios, but even the best judgement can’t control macro forces. After over a decade of funding South African businesses, we've learned a consistent lesson. The businesses that navigate a squeeze best aren't the ones that shrank the fastest. They are the ones that kept enough room to say ‘yes’, and for some, that means having a good funding partner.
Bridging the gap
A Business Cash Advance isn't designed to make you more profitable. It’s a bridge for the timing problem, letting you collect your margin and front future jobs before invoices are settled. Managed right, it can be the key to scaling by overcoming short-term capital constraints.
But funding the gap only works where the orders are real. Taking an advance against a hopeful order book simply makes you a larger creditor. We built a short checklist that scores whether your business can handle funding safely. Its lowest band tells you not to borrow, and for some, that’s the right call.
If you’re feeling the strain but have a strategy to manage it, Merchant Capital’s funding specialists are at hand to discuss your needs and a way to meet them.
