Business Funding Glossary

Accounts payable is the money a business owes to its suppliers for goods or services it has already received but not yet paid for.

Accounts payable appears on the balance sheet as a current liability, since it usually falls due within a short period, often set by the supplier's payment terms. Each unpaid supplier invoice, along with its due date, forms part of this balance.

Because accounts payable represents short-term liabilities, it directly affects working capital. A business with a large accounts payable balance has more cash on hand in the short term, but it also has upcoming obligations that must be met to protect supplier relationships and creditworthiness.

Accounts receivable is the total amount customers owe a business for goods or services that have already been delivered and invoiced.

When a business sells on credit rather than requiring immediate payment, the outstanding invoice becomes part of accounts receivable until the customer settles it. It sits on the balance sheet as a current asset because it is expected to convert into cash within a relatively short period.

A growing accounts receivable balance can be a sign of healthy sales, but if customers consistently pay late, it can also create a working-capital gap: the business has recorded the sale but has not yet received the cash needed to cover its own supplier payments, payroll and other costs.

Many South African SMEs use Invoice Financing to unlock cash tied up in accounts receivable rather than waiting out the full payment term.

Also known as: debtor ageing report, ageing report

Accounts receivable ageing is a report that groups outstanding customer invoices by how long they have been unpaid.

An ageing report typically sorts invoices into buckets such as Current, 1–30 days, 31–60 days, 61–90 days and 90+ days overdue. This makes it easy to see at a glance which customers are paying on time and which invoices are becoming a collections risk.

Ageing reports matter for cash flow because the longer an invoice remains unpaid, the more likely it is to affect a business's ability to meet its own short-term obligations. Funding providers assessing Invoice Financing or other receivables-based funding will often review an ageing report as part of understanding the quality and reliability of a business's receivables.

An advance rate is the percentage of an eligible receivable or asset value that a finance provider may make available as funding.

For example, if an invoice or asset is deemed eligible for financing, the advance rate determines how much of its value can typically be accessed upfront, with the remainder generally released once the underlying invoice or asset is settled, depending on the structure of the arrangement.

Advance rates vary between providers, products and individual assessments, and are influenced by factors such as the type of asset, the debtor or counterparty, and the provider's own risk criteria.

An affordability assessment is a review of whether a business can reasonably meet the repayment obligations of a proposed funding arrangement.

This typically involves looking at the business's revenue, cash flow patterns, operating expenses, and existing liabilities to understand how much capacity remains for additional funding obligations.

A thorough affordability assessment protects both the business and the funding provider: it helps ensure that new funding supports growth or operational needs without placing unsustainable pressure on day-to-day cash flow.

Alternative business funding refers to sources of business capital that operate outside traditional bank lending.

This umbrella term covers a wide range of funding types, including Revenue-Based Financing, Invoice Financing, Purchase Order Finance, Asset Finance and private credit providers. These approaches often assess businesses using different criteria to traditional banks, such as revenue trends, banking activity or the quality of outstanding invoices, rather than relying solely on lengthy trading history or hard collateral.

It is important to understand that alternative funding products are not interchangeable. Each type works differently, with its own assessment approach, cost structure and repayment mechanics, so the right option depends on the specific need, such as bridging a cash-flow gap, funding growth, or unlocking cash tied up in unpaid invoices.

Amortisation is the process of gradually paying down a financial obligation, or spreading a cost, over an agreed period of time.

In a funding context, amortisation usually refers to how a loan or other obligation is repaid in instalments over its term, rather than in a single lump sum.

The term is also used in accounting to describe how the cost of certain intangible assets, such as patents or licences, is spread over their useful life. While both uses share the idea of spreading a value over time, financial amortisation of a funding obligation and accounting amortisation of an intangible asset are distinct concepts.

Also known as: APR

The Annual Percentage Rate, or APR, is a standardised way of expressing the yearly cost of borrowing, including interest and certain fees, as a single percentage.

APR can be a useful reference point for comparing certain types of credit products on a like-for-like basis, since it attempts to express the total cost of borrowing over a year.

However, not every form of alternative business funding is priced or structured using an APR. Products such as revenue-linked financing or factor-rate pricing work differently, so APR alone does not always give a complete picture. When comparing funding options, it is generally useful to look at the total cost of funding and the repayment structure alongside any headline rate.

Annual revenue is the total value of sales a business generates over a twelve-month period, before any expenses are deducted.

Annual revenue is often used as a headline indicator of the scale of a business, but it should not be confused with profit, cash flow or net income. A business can have substantial annual revenue while still operating with thin margins or facing cash-flow pressure if costs are high or customer payments are delayed.

Funding providers frequently look at annual revenue, alongside its consistency and growth trend, as one input when assessing a business, particularly for revenue-linked funding structures.

An asset is anything of value that a business owns or controls that can provide future economic benefit.

Business assets can take many forms, including cash, stock or inventory, equipment, property, vehicles and accounts receivable. Assets are typically split into current assets, which are expected to convert to cash within a year, and longer-term assets such as property and equipment.

A business's total assets, together with its liabilities and equity, form the basis of the balance sheet and give insight into its overall financial position.

Asset finance is a type of business funding used specifically to acquire equipment, machinery, vehicles or other qualifying business assets.

Rather than funding day-to-day operating needs, asset finance is tied to the purchase of a specific asset, and the asset itself is often connected to the financing arrangement in some way.

This distinguishes asset finance from general working-capital funding, which is intended to support broader short-term operating requirements such as stock, payroll or supplier payments rather than a single identifiable purchase.

Asset-based lending is a form of financing that is secured against specific business assets, such as receivables, inventory or equipment.

The amount available typically relates to the assessed value of the underlying assets, and the assets themselves provide a form of security for the funding provider. Invoice Financing is one common example, where funding is linked to the value of outstanding customer invoices.

Because the funding is tied to identifiable assets, asset-based lending can sometimes be accessible to businesses that may not qualify for funding based on trading history or profitability alone, provided the underlying assets are of sufficient quality.

Bad debt is money owed to a business by a customer that is unlikely ever to be collected.

When a customer fails to pay an invoice and recovery becomes unlikely, the business typically has to write off that amount as bad debt. This directly reduces accounts receivable and can reduce reported profit for the period.

Beyond the accounting impact, bad debt also affects cash flow, since the business never receives the cash it expected from that sale. A pattern of bad debt across a customer base can be a signal that credit terms or customer vetting need review.

A balance sheet is a financial statement that shows what a business owns, what it owes, and the owners' residual interest at a specific point in time.

The balance sheet is built around the accounting equation: Assets = Liabilities + Equity. Assets include everything the business owns or controls, such as cash, receivables, inventory and equipment. Liabilities represent what the business owes, including accounts payable, loans and other obligations.

Assets and liabilities are further split into current and non-current categories, depending on whether they are expected to be settled or converted within twelve months. Equity represents the owners' remaining interest once liabilities are subtracted from assets.

A balloon payment is a larger, lump-sum payment due at the end of certain financing arrangements, after a series of smaller regular payments.

This structure allows for lower regular repayments throughout the term of the agreement, with the outstanding balance settled in a single larger payment at maturity. It is more commonly associated with certain asset finance or lease arrangements than with typical working-capital funding.

Businesses considering finance with a balloon payment structure need to plan carefully for how that final, larger amount will be met when it falls due.

Bank statement analysis is the review of a business's transaction history to understand its financial activity and behaviour over time.

Funding providers and financial institutions often use bank statement analysis as part of assessing a business, since transaction data can reveal patterns that are not always visible in financial statements alone.

Possible signals reviewed include the consistency of revenue deposits, the regularity and size of expenses, recurring obligations such as supplier payments or existing debt repayments, and general cash-flow patterns across different periods, including seasonal fluctuations.

Benchmarking is the process of comparing a business's financial metrics against a reference point, such as its own history, its budget, or its industry.

Common comparisons include measuring current performance against prior periods, against internally set targets or budgets, or against publicly available industry benchmarks for similar businesses.

Benchmarking helps business owners understand whether performance is improving or declining, and whether metrics such as margins, growth rates or debtor days are broadly in line with what is typical for their sector.

The break-even point is the level of sales at which total revenue equals total costs, meaning the business is neither making a profit nor a loss.

Below the break-even point, a business is operating at a loss; above it, each additional sale contributes to profit. Understanding the break-even point helps business owners set realistic sales targets and pricing.

The calculation relies on separating costs into fixed costs, which do not change with sales volume, and variable costs, which do.

Bridge finance is short-duration funding intended to cover a gap between two financial events, such as an expected payment and an immediate obligation.

For example, a business might need funding to cover costs while waiting for a large customer payment, an asset sale, or another form of financing to be finalised.

Because it is designed to be short-term by nature, bridge finance is typically intended to be repaid once the anticipated event, such as receipt of funds, actually occurs.

Business credit refers to a company's access to borrowed funds or deferred payment arrangements in a commercial context.

This can include credit extended by suppliers, credit facilities from financial institutions, or funding provided by alternative finance providers. A business's access to credit, and the terms on which it is offered, are typically influenced by factors such as trading history, financial performance and creditworthiness.

A business credit score is an indicator used by lenders and credit providers to help assess a company's creditworthiness.

Commercial credit scoring can draw on a range of information about the business, such as its registration details, payment behaviour, public record information and credit history with other providers.

There is no single universal method for calculating a business credit score. Different credit bureaux and funding providers may use different data sources and models, so a business may see somewhat different results depending on where a score is generated.

Business finance is the broad field covering how companies raise, manage and deploy money to fund their operations and growth.

It encompasses everything from day-to-day cash-flow management to longer-term decisions about how a business raises capital. Sources of business finance range from traditional debt and business loans to alternative funding such as invoice finance and revenue-based financing, asset finance, and equity investment.

Understanding business finance concepts, including revenue, profitability, liquidity and funding costs, helps business owners make more informed decisions about how to manage and grow their companies.

Business funding is capital provided to a company to support its operations, growth or specific financial requirements.

Business funding is a broad umbrella term that covers many different types of capital, including business loans, invoice financing, revenue-based financing, asset finance, trade finance and equity investment. Businesses typically seek funding when internally generated cash is not sufficient, or not immediately available, to cover a particular need.

Common purposes for business funding include purchasing inventory, paying suppliers, covering payroll, funding marketing activity, supporting expansion, acquiring equipment, fulfilling large customer orders, or bridging temporary cash-flow gaps caused by timing differences between paying costs and receiving customer payments.

When assessing a funding request, providers generally look at factors such as the business's revenue and its consistency, cash-flow patterns, banking activity, trading history, existing liabilities, and, depending on the product, the quality of assets such as outstanding invoices. These assessment factors vary between providers and funding types.

A key distinction within business funding is between debt-based funding, which typically involves repayment obligations but allows owners to retain full ownership, and equity funding, where a business raises capital by selling a stake in the company. Non-dilutive funding options, such as revenue-based financing and invoice financing, allow business owners to access capital without giving up equity.

Choosing the right type of business funding depends on the specific need, such as bridging a short-term cash-flow gap versus funding longer-term growth, and on how a business wants to balance repayment obligations against ownership.

A business funding application is the formal process through which a business requests capital from a funding provider.

The application process typically starts with the business providing information about itself, such as registration details, trading history, and financial or banking information, along with details of how much funding is required and for what purpose.

The specific information requested can vary by provider and product, but often includes some combination of financial statements or management accounts, recent bank statements, and, for receivables-based products, details of outstanding invoices. Once submitted, the application typically moves into an assessment or underwriting stage before an offer is made.

Business funding eligibility refers to the criteria a business needs to meet in order to be considered for a particular funding product.

Eligibility factors can vary significantly between funding providers and products, but commonly considered factors include trading history, revenue levels and consistency, banking activity, existing liabilities, industry, and, for receivables-based products, the quality of outstanding invoices.

Because eligibility criteria differ from one provider and product to the next, the best way to understand whether a specific business qualifies for a specific type of funding is to speak directly with that funding provider or complete an application.

A business funding provider is a company or institution that supplies capital to businesses, whether through traditional lending or alternative funding products.

This includes traditional banks as well as non-bank and alternative finance providers offering products such as invoice financing, revenue-based financing, asset finance and trade finance. Different providers tend to specialise in different products, industries or business profiles.

A business loan is a form of debt funding in which a business borrows a set amount of capital and agrees to repay it, typically with interest, over an agreed term.

Business loans usually follow a conventional structure: a lump sum is advanced, and the business repays it through scheduled instalments over the loan term, according to agreed interest and repayment terms.

This differs from Revenue-Based Financing, where repayments are typically linked to the business's revenue rather than a fixed schedule, and from Invoice Financing, which is tied to the value of specific outstanding invoices rather than a lump-sum advance.

A business overdraft is a facility linked to a business bank account that allows the account to go into a negative balance up to an agreed limit.

Overdrafts are typically used to smooth over short-term timing gaps in cash flow, rather than to fund larger or longer-term needs. Usage and cost generally depend on how much of the facility is drawn and for how long.

Business valuation is the process of estimating the economic value of a company.

Valuation approaches can consider factors such as revenue, profitability, growth prospects, assets and comparable market transactions. There is no single universal method, and different approaches can produce different results depending on the purpose of the valuation.

Business valuation tends to matter more in the context of equity transactions, such as raising investment or selling a stake in the company, than in standard working-capital funding, where assessment typically focuses more on revenue, cash flow and repayment capacity.

Capital refers to the financial resources a business has available to fund its operations, investments and growth.

Capital can come from a range of sources, including money invested by owners, retained profits, and external funding such as loans, invoice financing or equity investment.

How a business manages and deploys its capital, and where that capital comes from, has a direct impact on its ability to operate day to day and pursue growth opportunities.

Also known as: CAPEX

Capital expenditure, often abbreviated as CAPEX, is spending on longer-term assets that are expected to provide value to a business over multiple years.

Typical examples include machinery, equipment, vehicles, and improvements to business premises. These purchases are treated differently to day-to-day running costs because their value is used, and often depreciated, over an extended period rather than consumed immediately.

CAPEX is distinct from operating expenditure, or OPEX, which covers the regular costs of running the business, such as salaries, rent and utilities. A business planning significant capital expenditure often needs to think carefully about how that spending is funded, whether from cash reserves, asset finance, or another form of business funding.

A cash balance is the amount of cash a business has immediately available, typically held in its bank accounts.

Cash balance is a snapshot figure at a particular point in time, distinct from cash flow, which describes the movement of cash into and out of the business over a period. A healthy cash balance gives a business flexibility to meet short-term obligations and respond to unexpected costs or opportunities.

Also known as: burn rate

Cash burn is the rate at which a business is spending its available cash over a given period.

The term is especially relevant when a business's cash outflows exceed its inflows, meaning its cash balance is steadily decreasing. Understanding the cash burn rate helps a business estimate how long its current cash reserves will last if the pattern continues.

The cash conversion cycle measures how long it takes a business to convert money spent on inventory back into cash from customer sales.

It combines three timing measures: how long inventory sits before being sold, how long it takes customers to pay after being invoiced, and how long the business takes to pay its own suppliers. Together, these show the length of time cash is tied up in the operating cycle.

A shorter cash conversion cycle generally means cash returns to the business more quickly, which can reduce the need for external working-capital funding. A longer cycle, often caused by slow-paying customers or long inventory holding periods, can create pressure on cash flow even in a profitable business.

Cash flow is the actual movement of money into and out of a business over a given period.

Cash inflows typically include customer payments, funding received and other income, while cash outflows include supplier payments, payroll, rent, taxes and loan repayments. Positive cash flow means more money is coming in than going out over the period; negative cash flow means the opposite.

Cash flow is frequently confused with profitability, but the two are different concepts. Profitability measures whether revenue exceeds costs on paper, based on when income and expenses are recorded, while cash flow measures when money actually moves. A business can be profitable overall and still experience cash-flow problems if there is a timing gap between recording a sale and receiving the cash for it.

Operating cash flow, which focuses specifically on cash generated or used by core business activities, is one of the most closely watched measures of a business's underlying financial health.

The cash flow statement is one of the three core financial statements, showing how cash moved into and out of a business during a period.

It breaks cash movements into three categories: operating activities, which relate to core day-to-day business; investing activities, such as buying or selling equipment; and financing activities, such as raising or repaying funding.

Unlike the income statement, which can include non-cash items, the cash flow statement focuses purely on actual cash movements, making it a useful tool for understanding a business's liquidity alongside its profitability.

A cash reserve is an amount of cash a business deliberately holds as a buffer against unexpected costs, revenue shortfalls or volatility.

Maintaining a cash reserve can help a business absorb shocks, such as a late-paying customer or an unplanned expense, without immediately needing to seek emergency funding or delay its own supplier payments.

A cash-flow forecast is a projection of a business's expected cash inflows and outflows over a future period.

Forecasts are often built on a monthly basis and take into account known and expected items such as customer receipts, supplier payments, payroll, VAT obligations, and seasonal fluctuations in sales or costs.

A well-maintained cash-flow forecast helps a business anticipate periods when cash may be tight, giving it time to plan, adjust spending, or arrange funding in advance rather than reacting to a shortfall after it occurs.

A cash-flow gap is the timing mismatch between when a business must pay its own costs and when it receives payment from its customers.

This gap is a common and normal feature of business, especially for companies that sell on credit terms, but it can create real pressure if not planned for, since obligations such as payroll and supplier invoices often cannot wait for customer payment.

Collateral is an asset pledged as security against a funding arrangement, which a provider may claim if the obligation is not met.

Assets commonly used as collateral include property, equipment, vehicles or, in some cases, receivables. Secured funding, which relies on collateral, can be contrasted with unsecured funding, which does not require specific assets to be pledged as security.

Compound interest is interest calculated not only on the original amount borrowed or invested, but also on interest that has already accumulated.

Because interest is added to the base amount over time, compound interest can grow more quickly than simple interest, which is calculated only on the original principal. This concept is relevant to understanding how the cost of certain credit products, or the growth of savings and investments, can accelerate over time.

Contribution margin is the amount of revenue remaining after variable costs are deducted, which contributes towards covering fixed costs and generating profit.

Understanding contribution margin helps a business see how much each additional sale actually contributes financially, once the costs that scale directly with production or sales volume are accounted for.

Cost of capital is the economic cost a business incurs to obtain funding, whether through debt or equity sources.

For debt funding, this cost is typically reflected in interest and fees. For equity funding, the cost is less direct, reflecting the return investors expect in exchange for the risk of their investment, often via future growth in the value of their stake.

Businesses weighing different funding options often consider cost of capital alongside other factors such as repayment structure, ownership implications and flexibility.

Also known as: COGS

Cost of goods sold, or COGS, is the direct cost attributable to producing or acquiring the products a business sells.

For a retailer, this might include the wholesale cost of stock; for a manufacturer, it could include raw materials and direct production costs. COGS excludes broader operating costs such as marketing, administration or rent, which are treated separately as operating expenses.

Subtracting COGS from revenue gives gross profit, one of the key building blocks for understanding a business's overall profitability.

Credit assessment is the process a funding provider uses to evaluate a business's ability and likelihood to meet its financial obligations.

A credit assessment typically draws on multiple sources of information rather than a single figure. This can include the business's revenue and its consistency over time, banking transaction data, trading history, existing liabilities and repayment behaviour, and, for certain products, the quality of outstanding invoices or other receivables.

Cash flow is often a central focus of credit assessment for SME funding, since it reflects the business's real, day-to-day ability to generate the money needed to meet ongoing obligations, alongside repayment of any new funding.

Because different funding providers weigh these factors differently depending on the product being offered, the outcome of a credit assessment can vary between providers even for the same business.

A credit facility is an arrangement that gives a business access to an approved amount of funding under agreed terms and conditions.

Rather than receiving a single lump sum, a business with a credit facility can typically draw down funds as needed, up to an approved limit, according to the facility's terms. Common examples include overdrafts, lines of credit, and revolving credit facilities.

A credit limit is the maximum amount of funding available to a business under a particular credit facility.

A business does not necessarily need to use its full credit limit at any given time; many facilities allow funds to be drawn and repaid flexibly up to that ceiling, with the utilisation rate describing how much of the limit is currently in use.

Credit risk is the risk that a borrower or customer will fail to meet their financial obligations as agreed.

For a funding provider, credit risk relates to the possibility that a business will not repay funding as agreed. For a business extending credit terms to its own customers, credit risk relates to the possibility that those customers will not pay their invoices on time, or at all.

Credit terms are the conditions under which goods, services or finance are provided to a business or its customers before payment is made in full.

For a business granting credit terms to customers, this typically specifies the payment period, such as 30, 60 or 90 days. For a business receiving credit terms from a supplier or funding provider, the terms set out repayment expectations and any related conditions.

Creditworthiness describes how financially reliable a business is considered to be, based on its ability and track record of meeting financial obligations.

Factors that influence creditworthiness typically include payment history, financial stability, revenue trends and existing liabilities. A business with strong creditworthiness generally finds it easier to access funding and may be offered more favourable terms.

Current assets are resources a business expects to convert into cash, sell or use up within twelve months.

Common examples include cash itself, accounts receivable, inventory, and other short-term assets. Current assets are compared against current liabilities to assess a business's short-term financial position, including through measures such as working capital and the current ratio.

Current liabilities are financial obligations a business expects to settle within twelve months.

This typically includes amounts owed to suppliers, short-term borrowings, accrued expenses, and tax payable. Comparing current liabilities against current assets helps show whether a business has enough short-term resources to meet its near-term obligations.

The current ratio measures a business's ability to cover its short-term liabilities using its short-term assets.

It is calculated by dividing current assets by current liabilities. A higher ratio generally indicates more short-term assets relative to short-term obligations, while a lower ratio can indicate tighter short-term liquidity.

There is no single ratio that automatically indicates financial health for every business; what is typical can vary by industry, business model and stage of growth, so the current ratio is best interpreted alongside other financial information.

Also known as: DIO

Days Inventory Outstanding, or DIO, measures the average number of days a business holds inventory before it is sold.

A lower DIO generally means stock is moving more quickly, which tends to free up cash sooner. A higher DIO can indicate slower-moving stock, which ties up cash for longer and forms part of the working-capital cycle.

Also known as: DPO

Days Payable Outstanding, or DPO, measures the average number of days a business takes to pay its suppliers.

A higher DPO means a business is holding onto cash for longer before paying suppliers, which can support short-term liquidity, while a lower DPO means suppliers are being paid more quickly. DPO is one of the three components of the cash conversion cycle, alongside inventory days and receivable days.

Also known as: DSO

Days Sales Outstanding, or DSO, measures the average number of days it takes a business to collect payment after making a credit sale.

DSO is closely related to Debtor Days and is calculated in a similar way. A lower DSO generally indicates customers are paying more quickly, improving cash flow, while a higher DSO can signal collection issues or generous payment terms that put pressure on working capital.

Debt is borrowed capital that creates an obligation for the borrower to repay it, typically along with interest, according to agreed terms.

Debt funding allows a business to access capital without giving up ownership, which distinguishes it from equity funding. In exchange, the business takes on a repayment obligation that must be managed alongside its other financial commitments.

Debt finance is funding provided in the form of borrowed capital that must be repaid, rather than by selling a stake in the business.

Because it does not involve issuing shares, debt finance allows existing owners to retain full ownership and control of the business. Business loans, invoice financing and revenue-based financing are all examples of debt-style funding, though their specific repayment structures differ considerably.

Debt service refers to the payments a business makes towards its funding obligations, typically covering principal, interest, or other agreed amounts.

A business's total debt service across all of its funding obligations is an important input when assessing how much additional funding capacity it may have, since new obligations add to what must be paid regularly out of available cash flow.

Also known as: DSCR

The Debt Service Coverage Ratio, or DSCR, measures how comfortably a business's available cash flow or earnings cover its debt service obligations.

A higher DSCR generally suggests a business generates more cash relative to what it owes, giving it more of a buffer to absorb fluctuations. A lower DSCR suggests less room to spare.

Different funding providers and methodologies calculate DSCR in slightly different ways, and there is no single universal threshold that determines whether a business qualifies for funding. DSCR is best understood as one input among several used in assessing affordability.

A debtor is a customer or other party that owes money to a business, usually for goods or services already provided.

The total amount owed by all of a business's debtors makes up its accounts receivable balance, which is tracked and, where relevant, chased for payment as part of managing cash flow.

Debtor ageing is the classification of overdue customer invoices according to how long they have remained unpaid.

This is the same concept as accounts receivable ageing, and is typically presented in buckets such as current, 1–30 days, 31–60 days, 61–90 days, and 90 or more days overdue, helping a business prioritise collections and understand its exposure to slow-paying customers.

Debtor days measures the average number of days it takes a business to collect payment from its customers after a credit sale.

This metric matters because it directly affects cash flow: the more days it takes to collect payment, the longer cash remains tied up in outstanding invoices instead of being available for the business to use. Rising debtor days over time can be an early warning sign of collections issues or looser credit control.

Debtor days is closely watched by businesses and funding providers alike, since it feeds directly into the cash conversion cycle and is often reviewed as part of a credit assessment for invoice financing.

Default refers to a failure to meet an agreed financial obligation, such as a scheduled repayment.

The specific consequences of a default depend on the terms of the individual funding agreement in question. This glossary provides general educational information only and does not constitute legal advice; businesses should refer to their own funding agreement or seek professional advice for guidance specific to their situation.

Dilution is the reduction in existing shareholders' percentage ownership of a business that occurs when new shares are issued.

This typically happens when a business raises equity funding by issuing new shares to investors. While the value of the business may increase as a result of the new capital, each existing shareholder now owns a smaller proportional slice of the total company.

A discount rate is a rate used to convert a future cash flow into its equivalent value in today's terms.

The underlying idea is that money available today is generally worth more than the same amount received in the future, due to factors such as inflation and opportunity cost. Discount rates are used in various financial analyses, including valuation and investment appraisal.

A drawdown is the act of accessing funds that have already been approved under a credit facility or funding arrangement.

Rather than receiving all approved funds at once, some facilities allow a business to draw down amounts as needed, up to the approved limit, which can help manage the cost and timing of funding more efficiently.

Due diligence is the process of reviewing a business's financial, operational and legal information before a transaction or funding decision is finalised.

For business funding, due diligence typically involves verifying the information provided in an application, such as financial statements, banking activity, and details of outstanding invoices, to confirm it is accurate and supports the funding decision.

Early repayment refers to settling a funding obligation before the scheduled end date of the agreement.

How early repayment is treated, including whether it affects the total cost of funding, depends entirely on the terms of the individual funding agreement. Businesses considering early repayment should review their specific agreement or contact their funding provider directly.

Also known as: Earnings Before Interest, Taxes, Depreciation and Amortisation

EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation, a measure of a business's operating profitability.

Analysts and investors often use EBITDA to compare the underlying operating performance of businesses, since it strips out the effects of financing decisions, tax structures, and non-cash accounting items such as depreciation and amortisation.

It is important to note that EBITDA is not the same as cash flow. It does not account for changes in working capital, capital expenditure, or actual cash movements, so a business can have strong EBITDA while still facing cash-flow pressure.

Equity represents the owners' residual interest in a business, calculated as total assets minus total liabilities.

On the balance sheet, equity is what would theoretically remain for owners if all assets were sold and all liabilities settled. Equity can grow through retained profits or through raising new equity investment, and it can also refer more specifically to ownership stakes, such as shares, held by founders and investors.

Equity dilution is the decrease in an existing shareholder's ownership percentage that results when a business issues new shares.

For example, a founder who owns 100% of a business before an investment round will own a smaller percentage after new shares are issued to investors, even though the overall value of the business may have increased. This is why some business owners specifically seek non-dilutive funding options to raise capital without reducing their ownership stake.

Also known as: equity financing

Equity finance is capital raised by selling a stake in a business in exchange for investment.

Unlike debt finance, equity finance does not create a repayment obligation. Instead, investors receive ownership in the business and typically expect a return through future growth in the value of their stake, and sometimes through dividends or an eventual sale.

Raising equity finance results in dilution for existing shareholders, since new shares are issued to investors. It often also involves a degree of investor involvement in the business, which can range from passive ownership to active governance participation, depending on the arrangement.

An expense is money spent by a business in the course of running its operations.

Expenses are typically categorised as either fixed, such as rent, or variable, such as raw materials, and are recorded on the income statement to help determine profitability for a given period.

Exposure refers to the amount of financial risk associated with a particular borrower, customer, industry or transaction.

Funding providers and businesses alike consider exposure when managing risk, for example by monitoring how much of a business's receivables are concentrated with a single large customer, or how much total funding a provider has extended to a particular sector.

A facility fee is a charge that may apply for arranging or maintaining access to a funding facility.

Whether a facility fee applies, and how it is structured, depends entirely on the individual funding provider and product. Facility fees are one of several possible components that can make up the total cost of funding, alongside interest and other charges.

A factor rate is a pricing method used by some financing products, expressed as a decimal figure applied to the funded amount rather than as a percentage rate over time.

For example, a factor rate of 1.2 applied to R100,000 of funding would mean a total repayment amount of R120,000. This is an illustrative calculation only, intended to explain the mechanic rather than to represent any specific product's pricing.

It is important to understand that a factor rate is not calculated the same way as an interest rate or an APR, which are typically expressed as a percentage over a period of time. Comparing a factor rate directly to an APR without converting them to a common basis can be misleading.

Factoring is a form of financing in which a business sells or finances its outstanding invoices to access cash before customers pay.

Factoring is closely related to invoice discounting, though the two can differ in how collections are managed. In some factoring arrangements, the finance provider takes on responsibility for collecting payment directly from the customer, while in invoice discounting arrangements the business may retain more control over customer collections. The exact structure depends on the specific arrangement and provider.

A finance agreement is the contract that sets out the terms of a funding arrangement between a business and a funding provider.

This typically includes details such as the funding amount, repayment structure, applicable costs, and any conditions attached to the arrangement. Businesses should review their finance agreement carefully, since the specific terms govern how the funding works in practice.

A financial forecast is a projection of a business's expected future financial performance and position.

Forecasts commonly cover projected revenue, costs, profit, cash flow, and key balance-sheet items over a future period. They are used both for internal planning and, often, as part of a funding application to help a provider understand the trajectory of the business.

Financial ratios are calculations derived from a business's financial statements, used to help interpret its performance and financial position.

Common examples include the current ratio and quick ratio, which assess short-term liquidity; the debt-to-equity ratio, which compares borrowed capital to owners' equity; gross margin and net margin, which measure profitability; and the debt service coverage ratio, which assesses repayment capacity.

Ratios are most useful when compared over time, against a business's own budget, or against similar businesses in the same industry, rather than viewed in isolation.

Financial statements are formal records that summarise a business's financial performance and position, typically comprising the income statement, balance sheet and cash flow statement.

The income statement shows what a business earned and spent over a period, and the resulting profit or loss. The balance sheet shows what the business owns and owes, and the owners' equity, at a specific point in time. The cash flow statement shows where actual cash came from and where it went during the period.

These three statements work together to give a full picture of a business's finances. A business can appear profitable on its income statement while still facing liquidity pressure, which is why the cash flow statement and balance sheet are equally important for understanding overall financial health.

Financial statements, whether formally audited, reviewed, or prepared as internal management accounts, are commonly requested by funding providers as part of assessing a business for funding.

A fixed cost is a business expense that generally stays the same regardless of the level of sales or production activity.

Common examples include rent, certain salaries, software subscriptions and insurance. Fixed costs contrast with variable costs, which rise and fall with sales volume, and understanding the split between the two is central to concepts such as the break-even point and contribution margin.

A fixed repayment is a predetermined repayment amount that stays the same throughout the term of a funding arrangement.

This provides predictability, since the business knows exactly how much is due at each interval. It differs conceptually from revenue-linked repayment structures, where the amount due can vary in line with the business's revenue.

The funding amount is the total capital provided to a business under a funding arrangement.

The appropriate funding amount for a business depends on its specific need, such as bridging a cash-flow gap, purchasing stock or funding growth, and on what it can reasonably manage to repay based on its cash flow and revenue.

A funding application is the formal request a business submits to a provider to access business funding.

See Business Funding Application for a fuller explanation of the typical process and information involved.

Funding approval is the decision made by a funding provider, following its assessment process, to offer funding to a business.

Approval typically follows an underwriting or credit assessment stage and may come with specific terms, such as the funding amount, cost and repayment structure. Submitting an application does not guarantee approval; outcomes depend on the provider's assessment of the specific business.

Funding cost refers to the total expense a business incurs in exchange for accessing a particular source of capital.

Funding cost can be made up of several components depending on the product and provider, including interest, a fixed fee, a facility fee, transaction fees, or administration costs. Not every product uses the same combination of these components.

Because funding cost can be structured in different ways between products and providers, comparing the headline rate alone is not always enough. Understanding the total cost of funding, including all applicable fees and how they interact with the repayment structure, gives a clearer picture of what a business will actually pay.

A funding facility is an arrangement that gives a business ongoing or structured access to capital under agreed conditions.

Facilities can differ from a single lump-sum loan in that they may allow drawdowns, renewals or revolving access to funds, depending on the specific product and provider.

The funding period is the length of time over which funding is made available to a business or expected to be repaid.

This is closely related to the funding term, and the appropriate period generally depends on the purpose of the funding, ranging from short bridge finance to longer facilities supporting sustained growth.

Funding purpose is the specific reason a business is seeking capital.

Common funding purposes include purchasing inventory, supporting expansion, covering payroll, fulfilling a large customer order, or funding a marketing campaign. Understanding the purpose of funding helps a business, and its funding provider, identify the most suitable type of product.

The funding term is the agreed duration of a funding arrangement, from when capital is provided to when it is expected to be fully repaid.

Funding terms can range from short-term arrangements measured in weeks or months to longer-term facilities spanning several years, depending on the product and the purpose of the funding.

Gearing describes the relationship between a business's debt and its equity, showing how much of its capital structure comes from borrowing versus ownership.

A business with high gearing relies more heavily on debt relative to equity, which can amplify both returns and risk. A business with low gearing relies more on equity or retained earnings, which can mean lower repayment obligations but also potentially slower access to growth capital.

Gross margin is the percentage of revenue remaining after deducting the direct cost of producing or acquiring the goods sold.

Gross margin gives an early indication of how efficiently a business converts sales into profit before accounting for broader operating costs such as marketing, administration and rent.

Gross profit is the amount remaining after subtracting the cost of goods sold from revenue.

It represents the profit generated from a business's core sales activity, before deducting broader operating expenses, interest and tax.

Gross revenue is the total value of sales generated by a business before any deductions, such as returns, discounts or costs, are applied.

Gross revenue is often used interchangeably with total sales or turnover, and should not be confused with profit, which accounts for the costs incurred in generating that revenue.

Growth capital is funding specifically intended to help an established business expand its operations.

Common uses of growth capital include entering new markets, purchasing additional stock ahead of expected demand, hiring staff, investing in technology, increasing production capacity, marketing activity, and opening new branches or locations.

Growth capital can be sourced through various forms of business funding, including revenue-based financing, business loans or equity investment, depending on how a business wants to balance repayment obligations, cost, and ownership considerations.

Growth finance is funding intended to help a business finance its expansion plans.

The term is closely related to growth capital and is often used interchangeably to describe funding directed towards scaling a business rather than covering routine operating costs.

A guarantee is a commitment by one party to meet certain obligations if another party fails to do so.

In a funding context, a guarantee can add an extra layer of assurance for a funding provider. The specific terms, scope and implications of any guarantee depend entirely on the individual agreement, and businesses should seek their own professional advice for guidance on their specific circumstances.

Hire purchase is a way of acquiring an asset through a series of instalment payments, with ownership arrangements depending on the specific contract.

Under a typical hire purchase arrangement, a business uses an asset while paying for it in instalments, with ownership terms, including when and how ownership transfers, set out in the individual agreement.

Historical revenue is a business's past sales performance, used to understand patterns and trends over time.

Reviewing historical revenue helps identify seasonality, growth trends and consistency, which are often relevant when assessing a business for funding or when the business itself is forecasting future performance.

A hurdle rate is the minimum rate of return required to make an investment or funding decision worthwhile.

Businesses and investors use a hurdle rate as a benchmark when assessing whether a particular investment, project or use of capital is likely to generate a sufficient return relative to its cost and risk.

Also known as: profit and loss statement, P&L

The income statement shows a business's revenue and costs over a period, and the resulting profit or loss.

It typically starts with revenue, deducts the cost of goods sold to arrive at gross profit, then deducts operating expenses, interest and tax to arrive at net profit. Also known as a profit and loss statement, or P&L, the income statement is one of the three core financial statements.

Interest is the cost of borrowing money, expressed as an amount charged by a lender in accordance with the terms of an agreement.

Interest is one of the most common components of funding cost, though how it is calculated and applied can vary considerably between different funding products and providers.

An interest rate is the percentage charged on borrowed capital, as set out in the terms of a specific funding product.

Interest rates can be structured in different ways depending on the product, including fixed rates that remain constant over the term, or rates linked to other benchmarks. Not all business funding products are priced using a traditional interest rate; some, such as certain invoice financing or revenue-based structures, use alternative pricing mechanisms.

An interest-only period is a phase during which only interest, rather than both interest and principal, may be payable under certain funding structures.

This structure can reduce repayment amounts during the interest-only phase, though the full principal remains outstanding and typically becomes repayable afterwards. Whether an interest-only period applies depends entirely on the specific funding product and provider.

Also known as: stock

Inventory, also known as stock, refers to goods a business holds for the purpose of resale or use in production.

Inventory is recorded as a current asset on the balance sheet, since it is generally expected to be sold or used within the operating cycle. Managing inventory efficiently, avoiding both stockouts and excess stock, has a direct effect on cash flow.

Inventory days measures the average length of time inventory remains in stock before it is sold.

This is the same concept as Days Inventory Outstanding, and forms one of the three components of the cash conversion cycle. Shorter inventory days generally free up cash more quickly, while longer inventory days can tie up working capital in unsold stock.

Inventory finance is funding used specifically to help a business acquire stock.

This type of funding can help a business purchase inventory ahead of anticipated demand, or bridge the timing gap between paying for stock and generating sales revenue from it, without depleting general cash reserves.

An invoice is a formal document a business issues to a customer requesting payment for goods or services provided.

A typical invoice includes details such as the customer's information, a description of the goods or services, the amount payable, the invoice date, the applicable payment terms and due date, VAT where relevant, and a unique invoice number for reference and record-keeping.

Invoices are central to how most B2B businesses operate, since they formalise the amount owed and the timeline for payment, and they form the basis of a business's accounts receivable.

Invoice discounting is a form of financing against outstanding receivables in which the business may retain more control over customer collections, depending on the arrangement.

This can be a meaningful distinction for businesses that prefer to manage their own customer relationships and collections process directly, rather than having a finance provider interact with customers. The exact structure, including confidentiality and collections responsibilities, varies by provider.

Invoice finance is the broader category of funding products that provide capital against the value of outstanding customer invoices.

Invoice Financing, factoring and invoice discounting all fall under this umbrella term, each with slightly different structures for how funds are advanced and how collections are managed.

Invoice financing is a type of business funding that allows a company to access cash tied up in its unpaid customer invoices, rather than waiting for the full payment term to elapse.

Many B2B businesses extend payment terms of 30, 60 or even 90 days to their customers, which can create a significant working-capital gap: staff, suppliers and other costs often need to be paid well before the customer settles their invoice. Invoice financing is designed to help bridge that gap.

Because it is linked to the value and quality of specific outstanding receivables, invoice financing can be a useful option for businesses with strong sales but slow-paying customers, including companies that may not have extensive collateral or a long trading history but do have a solid base of outstanding invoices from creditworthy customers.

The suitability, eligibility criteria and specific structure of invoice financing can vary between providers, so it is worth understanding the details of any specific offer, including how much of an invoice's value may be accessible and how the arrangement works once the customer pays.

Invoice financing is particularly relevant for SMEs that sell to larger corporate or public-sector customers on extended payment terms, where cash-flow timing, rather than a lack of underlying demand, is the main constraint on growth.

Invoice payment terms specify how long a customer has to pay an invoice after it is issued.

Common payment terms include due on receipt, 7 days, 14 days, 30 days, 60 days and 90 days. Longer payment terms can help win or retain customers, but they also extend the time a business waits to receive cash, increasing its working-capital requirement.

Invoice value is the total amount payable as shown on an invoice.

This figure typically includes the price of goods or services provided, along with any applicable VAT or other charges, and represents the full amount the customer is expected to pay.

Invoice verification is the process of confirming that an invoice is valid, relates to completed work or delivered goods, and is genuinely payable.

This step is particularly relevant for invoice-based financing, since it helps confirm that the underlying receivable is legitimate before funding is advanced against it. The specific verification process used varies between funding providers.

Joint liability generally describes a situation where multiple parties share responsibility for meeting a single financial obligation.

The specific meaning and consequences of joint liability depend on the wording of the individual agreement involved. This is general educational information, not legal advice, and businesses should seek their own professional guidance for their specific circumstances.

Also known as: subordinated debt

Junior debt, also known as subordinated debt, is debt that ranks behind senior debt in priority of repayment.

If a business is unable to meet all of its obligations, senior debt is generally repaid before junior debt. Because it carries relatively higher risk for the lender, junior debt is typically priced with a higher cost than senior debt. This is an advanced financing concept, more relevant to larger or more complex capital structures than typical SME working-capital funding.

Also known as: KPI

A Key Performance Indicator, or KPI, is a measurable value used to track how well a business is performing against its objectives.

Common financial KPIs relevant to business funding include revenue growth, gross margin, debtor days and the cash conversion cycle, alongside operational metrics such as customer numbers or order volume. Tracking KPIs consistently over time helps business owners spot trends and make informed decisions.

Also known as: KYB

Know Your Business, or KYB, refers to the process of verifying a company's identity, ownership structure and business information.

KYB checks are a standard part of onboarding for many financial service providers, helping confirm that a business is legitimately registered and that its ownership information is accurate.

Also known as: KYC

Know Your Customer, or KYC, refers to identity verification processes used by financial institutions and service providers.

KYC requirements can vary depending on the jurisdiction and the type of financial service involved. This glossary provides general educational context only and does not describe any specific institution's compliance requirements.

Late payment occurs when a customer pays an invoice after its agreed due date.

Late payment is one of the most common causes of cash-flow strain for SMEs, since a business may still need to cover its own supplier payments, payroll and other costs on schedule, regardless of when its own customers actually pay.

A liability is a financial obligation owed by a business to another party.

Liabilities are recorded on the balance sheet and split into current liabilities, due within twelve months, and long-term liabilities, due beyond that period. Common examples include amounts owed to suppliers, loans, and tax payable.

A line of credit is a form of finance that gives a business access to funds up to a specified approved limit, which can be drawn on as needed.

Unlike a lump-sum loan, a line of credit allows a business to borrow, repay and borrow again within the approved limit, which can make it a flexible tool for managing short-term cash-flow fluctuations.

Liquidity is a business's ability to meet its short-term financial obligations using cash or assets that can quickly be converted into cash.

Liquidity is distinct from profitability, which measures whether a business earns more than it spends, and from solvency, which measures a business's ability to meet its total obligations, including long-term debt, over time.

A business can be profitable yet illiquid if its cash is tied up in slow-paying receivables or excess inventory, meaning it struggles to pay short-term bills despite performing well overall. Conversely, a business can have strong liquidity in the short term while facing longer-term solvency concerns if its overall liabilities are too high relative to its assets.

A loan is an amount of money borrowed under agreed terms, which the borrower must repay, typically with interest, over a set period.

Loans are one of the most familiar forms of debt finance, and their structure, cost and repayment schedule are set out in a loan agreement between the borrower and the lender.

A loan agreement is the legal document that sets out the terms and conditions of a loan.

This typically includes the loan amount, interest rate or pricing structure, repayment schedule, and any other conditions attached to the finance. Reviewing the loan agreement carefully is important, since it governs the rights and obligations of both parties.

Also known as: LTV

Loan-to-Value, or LTV, expresses the amount of a loan as a percentage of the value of the asset securing it.

LTV is mainly relevant to secured forms of finance, where an asset such as property or equipment backs the funding. A lower LTV generally means less borrowing relative to the asset's value.

Long-term debt refers to financial obligations that a business is generally expected to repay over a period longer than one year.

It is recorded separately from current liabilities on the balance sheet, reflecting its longer repayment horizon. Long-term debt is often used to fund larger investments, such as property or major equipment, rather than day-to-day operating needs.

Management accounts are internal financial reports a business prepares regularly, typically monthly, to track its performance and position.

Unlike formal annual financial statements, management accounts are usually produced more frequently and are intended primarily for internal decision-making, though they are also commonly requested by funding providers as part of a funding application.

A typical set of management accounts includes a monthly profit and loss statement, a balance sheet, a summary of the current cash position, details of debtors and creditors, and comparisons against budget.

Margin generally refers to a profitability ratio that expresses profit as a percentage of revenue.

The term "margin" can refer to several related but distinct measures, most commonly gross margin, which looks at profit after direct product costs, and net profit margin, which looks at profit after all costs. It is worth checking which specific margin is being referred to in any given context.

The maturity date is the date on which a finance obligation becomes fully due, according to the terms of the agreement.

For funding structures that include a larger final payment, such as certain asset finance arrangements, the maturity date is when that payment falls due.

A merchant cash advance is a funding model in which capital is provided against a business's expected future card or sales revenue.

Repayment under a merchant cash advance is typically linked to ongoing sales, rather than following a fixed schedule. While conceptually related to revenue-based financing, in that repayment scales with sales activity, the specific mechanics, pricing and repayment structure of a merchant cash advance can differ from revenue-based financing products, and vary between providers.

A minimum payment is the smallest amount a business is required to pay under a particular credit arrangement within a given period.

Whether a minimum payment applies, and how it is calculated, depends on the specific credit facility or funding product in question.

Also known as: MRR

Monthly Recurring Revenue, or MRR, is the predictable revenue a business expects to receive each month from ongoing, typically subscription-based, arrangements.

MRR is particularly relevant for subscription businesses, since it provides a clear, standardised view of recurring income that can be tracked and forecast, distinct from one-off or irregular sales.

Monthly revenue is the total value of a business's sales generated within a single calendar month.

Reviewing monthly revenue over time helps identify trends, seasonality and growth, and is often used alongside annual revenue when assessing a business's overall financial trajectory.

Net cash flow is the difference between the total cash a business receives and the total cash it pays out over a given period.

A positive net cash flow means more cash came in than went out over the period, while a negative net cash flow means the opposite. It is a useful headline figure, though understanding the underlying operating, investing and financing components gives a fuller picture.

Net income is the final profit a business earns after all expenses, including tax, have been deducted from revenue.

Net income is often used interchangeably with net profit, and appears at the bottom of the income statement as the ultimate measure of a business's bottom-line profitability for the period.

Net profit is the amount remaining after all business costs, including operating expenses, interest and tax, have been deducted from revenue.

Net profit is the final, bottom-line measure of profitability, distinct from gross profit, which only accounts for the direct cost of goods sold, and operating profit, which excludes interest and tax.

Net profit margin expresses a business's net profit as a percentage of its revenue.

This ratio shows how much of every Rand of revenue ultimately converts into bottom-line profit after all costs are accounted for, making it a widely used measure of overall profitability.

Net working capital is another term for working capital, calculated as current assets minus current liabilities.

The two terms are generally used interchangeably. See Working Capital for a fuller explanation, including a worked example and its relevance to day-to-day business operations.

Non-bank funding is business finance provided by entities other than traditional banks.

This includes alternative finance providers, private credit funds and specialist lenders offering products such as invoice financing and revenue-based financing. Non-bank providers often use different assessment approaches to traditional banks, which can make certain types of funding more accessible to SMEs.

Non-dilutive funding is business capital that does not require a business to give up any ownership or issue new shares.

Because it does not involve selling equity, non-dilutive funding allows business owners to retain their full ownership stake, along with the decision-making control that comes with it. Common examples include invoice financing, revenue-based financing, asset finance and traditional business loans.

This differs fundamentally from equity investment, where a business raises capital by selling a stake to investors. While equity funding does not typically create a repayment obligation, it does result in dilution, meaning existing owners hold a smaller percentage of the business afterwards. Non-dilutive funding generally does involve some form of repayment obligation, but without affecting ownership.

For business owners who want to access growth or working capital without reducing their stake in the company, non-dilutive options such as Invoice Financing and Revenue-Based Financing are often worth considering.

Operating cash flow is the cash generated or used by a business's core day-to-day operating activities.

It excludes cash movements related to investing activities, such as buying equipment, and financing activities, such as raising or repaying funding, focusing purely on the cash generated by the underlying business. Operating cash flow is one of the clearest indicators of whether a business's core operations are self-sustaining.

Also known as: OPEX

Operating expenses, or OPEX, are the regular costs a business incurs to run its day-to-day operations.

Typical examples include salaries, rent, utilities, marketing and software costs. Operating expenses are distinct from the cost of goods sold, which relates directly to producing what is sold, and from capital expenditure, which covers longer-term asset purchases.

Operating margin expresses a business's operating profit as a percentage of its revenue.

This ratio shows how much profit a business generates from its core operations before interest and tax are taken into account, offering a view of underlying operational efficiency.

Operating profit is the profit a business earns from its core operations after deducting operating expenses, but before interest and tax.

It sits between gross profit and net profit on the income statement, giving a view of profitability that excludes the effects of financing decisions and tax, focused purely on how the underlying business is performing.

Outstanding balance is the amount still owed under a finance arrangement at a given point in time.

This figure decreases as repayments are made and can be an important reference point for understanding how much of a funding obligation remains.

An outstanding invoice is an invoice that has been issued to a customer but has not yet been paid.

Outstanding invoices form part of a business's accounts receivable. While a certain level of outstanding invoices is normal for businesses that sell on credit terms, a growing balance of overdue outstanding invoices can create real cash-flow pressure, since the business has recorded the sale but has not yet received the cash.

An overdraft is a facility that allows a business bank account to go into a negative balance, up to an agreed limit.

See Business Overdraft for a fuller explanation of how this facility is typically used to manage short-term cash-flow timing gaps.

Payable days measures the average number of days a business takes to pay its suppliers.

This is the same concept as Days Payable Outstanding, and forms one of the three components of the cash conversion cycle, alongside inventory days and receivable days.

A payment cycle is the period of time between when an invoice is issued and when payment is actually received.

Understanding a business's typical payment cycle, across its whole customer base, helps with cash-flow planning and highlights where working-capital gaps are most likely to occur.

Payment terms are the agreed conditions specifying when payment for goods, services or an invoice is due.

Common payment terms range from due on receipt to 30, 60 or 90 days after the invoice date. Payment terms directly influence a business's cash conversion cycle: the longer the terms extended to customers, the longer cash remains tied up in receivables before it becomes available to the business.

Businesses often need to balance offering competitive payment terms to win and retain customers against the working-capital impact of waiting longer to be paid. This is one of the main reasons businesses with generous customer payment terms consider tools such as invoice financing.

A personal guarantee is a commitment by an individual, often a business owner or director, to personally stand behind certain business obligations.

Whether a personal guarantee is required, and on what terms, depends entirely on the specific funding provider and product. This is general educational information only, not legal advice, and businesses should review the terms of any specific funding offer carefully.

Principal is the original amount of money borrowed or currently outstanding under a funding arrangement, excluding interest and other costs.

Repayments under many funding structures are made up of both principal and cost components, such as interest, so understanding how much of each payment reduces the principal balance helps track progress towards full repayment.

Private credit refers to financing provided by non-bank private lenders or investment funds, rather than traditional banks or public markets.

Private credit providers often have more flexibility in how they assess and structure funding compared with traditional banks, which can make them a source of alternative business funding for companies with specific or non-standard requirements.

Profit is the amount of money remaining after a business's costs are subtracted from its revenue.

Profit is typically measured at several levels. Gross profit is revenue minus the direct cost of goods sold. Operating profit deducts broader operating expenses as well, but excludes interest and tax. Net profit, the final bottom-line figure, deducts all remaining costs, including interest and tax.

It is important not to confuse profit with cash flow. Profit is an accounting measure based on when income and expenses are recorded, while cash flow reflects when money actually moves. A business can be profitable on paper while still experiencing cash-flow difficulties if customer payments are delayed.

Also known as: P&L

The profit and loss statement, or P&L, is another name for the income statement, showing revenue, costs and resulting profit or loss over a period.

The terms P&L and income statement are used interchangeably in most business contexts. See Income Statement for a fuller explanation.

Profit margin expresses a business's profit as a percentage of its revenue.

Depending on the context, profit margin can refer to gross margin, operating margin or net profit margin, each measuring profitability at a different stage of the income statement.

A purchase order is a confirmed order document a customer issues to a business, specifying the goods or services required.

A purchase order represents a customer's formal commitment to buy, but it is not the same as an invoice, which is issued by the seller once goods or services have been delivered, requesting payment.

Purchase order finance is funding used to help a business fulfil a confirmed customer order before an invoice can be raised.

This type of funding can help cover the cost of production, stock or supplier payments needed to complete a large order, bridging the gap between winning the order and being able to invoice for it. It differs from invoice financing, which is used once an invoice has already been issued, rather than before fulfilment.

A qualified invoice is an invoice that meets a funding provider's requirements to be considered for invoice-based financing.

What makes an invoice qualify can vary between providers, but generally relates to factors such as the invoice being verified, genuinely owed, and issued to a creditworthy customer. Specific qualification criteria depend on the individual funding provider.

Also known as: Acid-Test Ratio

The quick ratio, also known as the acid-test ratio, measures a business's ability to meet its short-term liabilities using its most liquid assets, excluding inventory.

By removing inventory from current assets, the quick ratio gives a more conservative view of short-term liquidity than the current ratio, since inventory can sometimes take longer to convert into cash than other current assets.

A quotation is a commercial document setting out a proposed price for goods or services before an order is confirmed or an invoice is issued.

A quotation is not the same as an invoice. A quotation is a proposal that a customer may or may not accept, while an invoice is a formal request for payment issued once goods or services have been provided.

Receivables are amounts owed to a business by its customers, typically arising from goods or services sold on credit.

Receivables are recorded as a current asset on the balance sheet and are closely tied to a business's cash flow, since the timing of collection directly affects how much cash the business has available.

Receivables finance is a broad category of funding provided against the value of a business's customer receivables.

Invoice financing, factoring and invoice discounting are all forms of receivables finance, each with somewhat different structures for how funds are advanced and how collections are handled.

Recourse describes whether, and to what extent, a business remains responsible for a receivable if a customer ultimately fails to pay it.

Some financing arrangements can leave the business responsible for repaying the funding provider if the underlying customer does not pay, while others may allocate that risk differently. The specific position depends entirely on the individual agreement, and this is general educational information rather than legal advice.

Repayment refers to returning funding to a provider according to the terms agreed in the funding arrangement.

How repayment is structured, including frequency and amount, varies significantly between funding products, ranging from fixed instalments to amounts linked to business revenue.

Repayment frequency describes how often repayments are due under a funding arrangement.

Possible structures include daily, weekly, monthly or revenue-linked repayments. Not every funding provider or product uses every possible structure; the specific frequency depends on the individual arrangement.

A repayment schedule sets out the agreed timing and amount of repayments due under a funding arrangement.

Reviewing the repayment schedule alongside expected cash flow is an important step in understanding whether a proposed funding arrangement is manageable for the business.

Repayment structure describes the method by which a funding obligation is repaid over time.

Fixed repayment structures involve a set amount due at each interval, offering predictability. Variable repayment structures can change according to agreed variables. Revenue-linked repayment structures scale with the business's revenue, meaning repayments are generally higher when revenue is strong and lower when revenue is weaker.

Each structure has different cash-flow implications. Fixed repayments are predictable but do not adjust to changes in trading conditions, while revenue-linked repayments can flex with the business's performance, which may suit companies with variable or seasonal income.

Retained earnings are the accumulated profits a business has kept and reinvested, rather than distributed to owners.

Retained earnings form part of equity on the balance sheet and represent an internal source of capital that a business can use to fund operations or growth without needing external funding or issuing new shares.

Also known as: ROI

Return on Investment, or ROI, measures the gain from an investment relative to its cost, expressed as a percentage.

ROI is a widely used way of comparing the relative efficiency of different investments or uses of capital, helping business owners assess whether a particular spend is generating a worthwhile return.

Also known as: sales, turnover

Revenue is the total value of income a business generates from its normal business activities, before any costs or expenses are deducted.

Revenue is often referred to as sales or turnover, and represents the top line of the income statement. It is a measure of business activity, not profitability: a business can have high revenue while still recording a loss if its costs exceed what it earns.

Revenue is also distinct from cash flow. Revenue is typically recorded when a sale is made or invoiced, which may be well before the corresponding cash is actually received from the customer, particularly for businesses that sell on extended payment terms.

Because it reflects the underlying scale and trend of business activity, revenue, and particularly its consistency over time, is one of the most commonly reviewed factors when a business applies for funding, especially for revenue-based financing.

A revenue forecast is a projection of a business's expected future revenue over a given period.

Revenue forecasts are typically built using historical revenue trends, known sales pipeline information, seasonal patterns and planned growth activity, and form a key input into broader cash-flow and financial forecasting.

Revenue growth measures the percentage increase, or decrease, in a business's revenue between two periods.

Tracking revenue growth over time is one of the clearest indicators of business momentum, and it is frequently reviewed by funding providers assessing revenue-based financing, since consistent growth can indicate a business is scaling successfully.

Revenue run rate is an annualised estimate of revenue based on performance over a shorter, more recent period.

For example, a business might multiply its most recent monthly revenue by twelve to estimate an annualised run rate. This figure is not the same as actual annual revenue, since it assumes the recent period is representative of the full year, which may not account for seasonality or one-off factors.

Revenue-based financing is a type of business funding in which the funding is linked to a company's revenue, rather than following the fixed structure of a conventional loan.

Because it is tied to revenue, this type of funding is generally most relevant to established businesses with consistent, recurring or predictable revenue streams, rather than early-stage companies without a trading history to assess.

One of the key attractions of revenue-based financing is that it does not require a business to give up equity. Business owners can access capital for working capital or growth needs while retaining full ownership, which sets it apart from equity investment.

The structure of revenue-based financing, including how funding amounts and repayments relate to revenue, differs from a conventional fixed-instalment loan, and the specific mechanics, suitability and pricing vary between funding providers. It is worth understanding the details of any specific offer before proceeding.

Revenue-based financing can suit businesses that want funding to scale with their trading performance, rather than committing to a fixed repayment amount regardless of how revenue fluctuates.

A revolving credit facility allows a business to borrow, repay and borrow again, up to an approved limit, without needing to reapply each time.

This structure gives businesses ongoing flexibility to manage fluctuating cash-flow needs, since available credit is replenished as amounts are repaid, rather than being a single one-off advance.

Risk assessment is the process of evaluating the financial and commercial risks associated with a business, transaction or funding decision.

For funding providers, risk assessment typically forms part of the broader underwriting process, drawing on financial data, banking activity, trading history and other information to understand the likelihood of a business meeting its obligations.

Sales revenue is the income a business generates directly from selling its products or services.

Sales revenue is generally the largest component of a business's total revenue and forms the starting point of the income statement.

Seasonal cash flow refers to predictable fluctuations in a business's cash inflows and outflows caused by seasonal changes in demand or costs.

Businesses with pronounced seasonality, such as retailers around peak shopping periods, often need to plan working capital carefully to cover slower months, or to fund additional stock ahead of a busy season.

Secured business funding is funding backed by collateral, such as property, equipment or other qualifying assets pledged by the business.

Because the funding provider has a claim over specific assets if obligations are not met, secured funding can sometimes be structured with different terms compared with unsecured funding. Suitability depends on the assets available to the business and its specific funding need.

Security refers to collateral or other contractual protection provided to a funding provider as part of a financing arrangement.

The nature of security can vary widely, from a specific pledged asset to broader contractual undertakings, and depends entirely on the individual funding agreement and provider.

Senior debt is debt that has priority over other, subordinated forms of debt when it comes to repayment.

If a business is unable to meet all of its obligations, senior debt generally ranks ahead of junior or subordinated debt for repayment. This is a more advanced financing concept, typically relevant to larger or more layered capital structures.

Short-term business funding is capital intended to meet operating requirements over a relatively brief period.

This type of funding is often used to bridge cash-flow gaps, cover seasonal fluctuations, or fund specific short-duration needs, as opposed to longer-term funding used for sustained growth or major asset purchases.

Short-term debt refers to financial obligations that are generally due within twelve months.

It is recorded as part of current liabilities on the balance sheet, and includes items such as short-term borrowings and the current portion of longer-term debt.

Also known as: Small and Medium-sized Enterprise

SME stands for Small and Medium-sized Enterprise, referring to businesses that fall below certain size thresholds, typically measured by revenue, employee numbers or assets.

SMEs form a significant part of the South African economy, and the term is used broadly to describe the vast range of businesses from small owner-run operations to larger, more established mid-sized companies. Definitions of what qualifies as an SME can vary between institutions and contexts.

SME finance refers to the broad range of financial products and solutions available to small and medium-sized enterprises.

This includes traditional business loans as well as alternative funding options such as invoice financing, revenue-based financing and asset finance, along with everyday business banking products.

SME funding is capital provided specifically to support the operations and growth of small and medium-sized enterprises.

SMEs commonly seek funding for a range of purposes, including purchasing stock, covering payroll, supporting expansion, acquiring equipment, meeting working-capital needs, or fulfilling large customer orders that exceed their available cash reserves.

Because SMEs often have shorter trading histories or less traditional collateral than larger corporates, alternative funding products such as invoice financing and revenue-based financing have become an important part of the SME funding landscape in South Africa, alongside traditional bank lending.

Solvency is a business's ability to meet its long-term financial obligations, based on the overall relationship between its total assets and total liabilities.

Solvency differs from liquidity, which focuses specifically on a business's ability to meet short-term obligations using readily available resources. A business can be liquid in the short term, comfortably paying its immediate bills, while still facing solvency concerns if its total liabilities significantly exceed its total assets over the longer term.

Supplier credit is an arrangement in which a supplier allows a business to pay for goods or services after they have been received, rather than upfront.

Supplier credit is a common and important source of short-term working capital for many businesses, effectively allowing them to use goods or services before the corresponding cash payment is due.

Supplier finance refers to funding solutions that support payments to suppliers or broader supply-chain transactions.

This can help a business manage the timing between paying suppliers and receiving payment from its own customers, particularly for larger orders or extended supply chains.

Supplier payment terms are the agreed period a business has to pay its suppliers after receiving goods or services.

These terms are typically negotiated between the business and its supplier and directly affect the business's cash conversion cycle: longer supplier terms can ease short-term cash pressure, while shorter terms require cash to be available sooner.

Sustainable growth is business growth that a company can support without placing excessive strain on its cash flow or financial resources.

Growing too quickly without adequate working capital can create cash-flow pressure, since costs such as stock, staff and supplier payments often need to be funded ahead of the additional revenue those investments generate. Planning funding alongside growth targets helps a business expand at a pace it can genuinely support.

A term loan is a form of business funding in which a lump sum is borrowed and repaid over an agreed term through scheduled instalments.

Term loans are one of the more conventional forms of debt finance, with a defined loan amount, interest structure and repayment schedule agreed upfront, distinguishing them from revolving facilities or revenue-linked funding structures.

The total cost of funding is the full amount a business ultimately pays for a funding arrangement, beyond just the headline interest rate.

Understanding total cost of funding means looking beyond a single rate to the complete picture, including the principal amount, any interest charged, applicable fees such as facility or administration fees, transaction charges, the duration of the arrangement, and the timing of repayments.

Because different funding products are priced and structured in different ways, some using interest rates, others using factor rates or revenue-linked structures, comparing the total cost of funding across options gives a more accurate basis for decision-making than comparing headline rates alone.

Trade credit is an arrangement in which a supplier provides goods or services to a business before requiring payment.

Trade credit is a widely used and important source of short-term working capital, effectively allowing a business to use inputs before the corresponding cash outlay is due.

Trade finance is funding that supports businesses engaged in domestic or international trade transactions.

This category can include import finance and export finance, which help businesses fund the purchase or sale of goods across borders, along with instruments such as letters of credit, and broader supplier finance and purchase order finance arrangements.

Trading history refers to the length of time a business has been actively operating and generating revenue.

Funding providers often consider trading history as part of assessing a business, since a longer track record can provide more data to evaluate consistency and reliability. Requirements around minimum trading history vary between funding providers and products.

Transaction history is the record of a business's past banking and payment activity.

Reviewing transaction history is a common part of assessing a business for funding, since it can reveal patterns in revenue, expenses and existing obligations that support or supplement information found in formal financial statements.

Turnover is the total value of sales a business generates over a given period, and is commonly used interchangeably with revenue.

Turnover is a measure of business activity, not profitability. A business can report substantial turnover while still recording a loss, if its costs exceed what it earns from those sales.

Underwriting is the process a funding provider uses to analyse a business and decide whether, and on what terms, to offer funding.

Underwriting typically draws together multiple sources of information, including a business's revenue and its consistency, bank transaction history, financial statements or management accounts, cash-flow patterns, existing debt and liabilities, and, for receivables-based products, the quality of outstanding invoices.

Payment behaviour and business history are also commonly considered, since they help build a picture of how reliably a business has managed its obligations in the past. The exact underwriting approach, including which factors carry the most weight, differs from one funding provider and product to the next.

Unsecured business funding is funding provided without requiring the business to pledge specific physical assets as collateral.

Instead of relying on collateral, providers of unsecured funding typically base their assessment on other factors, such as the business's revenue, cash flow, banking activity, financial performance and overall credit profile.

Unsecured funding can be a useful option for businesses that do not have significant physical assets to pledge, but it is not automatically easier to obtain or guaranteed to be approved. Providers still carry out a thorough assessment, and outcomes depend on the specific circumstances of each business.

Utilisation rate is the percentage of an available credit facility that a business is currently using.

Tracking utilisation rate helps a business understand how much additional capacity remains under an existing facility, and can also be a factor funding providers consider when assessing ongoing credit risk.

Valuation is the process of estimating the economic value of a company or asset.

See Business Valuation for a fuller explanation of how valuation is typically approached and where it tends to matter most in a business funding context.

A variable cost is a business expense that rises and falls in line with sales volume or production activity.

Common examples include raw materials, packaging, transaction-related costs and sales commissions. Understanding the split between variable and fixed costs is central to calculating contribution margin and the break-even point.

A variable repayment is a repayment amount that can change over time according to agreed variables, rather than remaining fixed.

Revenue-linked repayment structures are one example, where the repayment amount moves in line with the business's revenue. This differs from a fixed repayment, which stays the same at every interval.

Also known as: Value-Added Tax

VAT, or Value-Added Tax, is a consumption tax applied to most goods and services in South Africa.

For registered businesses, VAT is typically added to invoices and periodically paid over to the tax authority, which can be an important factor in cash-flow planning. This is general educational information at a high level only, and businesses should consult a qualified tax professional for guidance specific to their circumstances.

Venture capital is a form of equity investment provided to businesses with significant growth potential, typically in exchange for a stake in the company.

Venture capital investors generally seek substantial future growth in the value of their investment and often take an active role in supporting or guiding the business. This contrasts with non-dilutive funding options, where a business raises capital without giving up any ownership.

Verification is the process of checking that information provided as part of a funding application is accurate and genuine.

This can include confirming business registration details, identity documents, bank data, outstanding invoices and other supporting information, helping ensure that funding decisions are based on accurate and reliable information.

Also known as: WACC

Weighted Average Cost of Capital, or WACC, is the blended cost of a business's capital, combining the cost of its debt and the cost of its equity, weighted by how much of each it uses.

WACC is an advanced financial concept used mainly in valuation and investment analysis, giving a single blended rate that reflects the overall cost of a business's funding sources. It is more relevant to larger corporate finance decisions and formal valuations than routine SME working-capital funding.

Also known as: net working capital

Working capital is the difference between a company's current assets and current liabilities, representing the short-term resources available to support everyday operations.

Current assets typically include cash, accounts receivable and inventory, while current liabilities typically include amounts owed to suppliers, short-term debt, tax payable and payroll-related obligations. Working capital shows how much short-term financial cushion a business has once its near-term obligations are accounted for.

Positive working capital generally means a business has enough short-term assets to comfortably cover its short-term liabilities, giving it flexibility to operate smoothly. Negative working capital can indicate that a business may struggle to meet its near-term obligations without additional cash, financing, or faster collection of receivables.

Working capital naturally fluctuates as a business buys stock, makes sales, issues invoices and collects payment, a pattern described by the working capital cycle. Many common business funding needs, from purchasing inventory to covering payroll during a slow month, are ultimately about managing working capital effectively.

The working capital cycle is the ongoing process a business goes through as it buys stock, sells products, issues invoices, and eventually collects payment from customers.

The cycle typically flows: buy stock, sell the product, issue an invoice, wait for the customer to pay, and finally receive the cash. Each stage ties up cash for a period of time before it is released back into the business.

The length of the working capital cycle is closely tied to inventory days, debtor days and payable days. A business with slow-moving stock, slow-paying customers, and fast-paying suppliers will have a longer working capital cycle, and is more likely to need external funding to bridge the gap.

A working capital facility is a funding arrangement designed to support a business's short-term operating requirements.

Rather than funding a single large purchase, a working capital facility is typically structured to give a business ongoing access to funds for day-to-day needs such as stock, payroll and supplier payments.

Working capital finance is an umbrella term for financing used to support a business's everyday operating needs.

This includes products such as invoice financing, revenue-based financing, business overdrafts and short-term facilities, all aimed at helping a business meet its day-to-day obligations rather than fund longer-term asset purchases.

Working capital funding is capital provided specifically to help a business cover its short-term operating requirements.

Common uses of working capital funding include purchasing inventory, paying suppliers on time, covering salaries, managing seasonal expenses, funding marketing activity, fulfilling large customer orders, and bridging cash-flow gaps caused by timing differences between paying costs and receiving customer payments.

Because working capital needs are often recurring and closely tied to the pace of trading, many businesses use a combination of internal cash management and external funding, such as invoice financing or revenue-based financing, to keep operations running smoothly without being constrained by payment timing.

Working capital requirement is an estimate of how much capital a business needs to maintain its ongoing operations.

A simplified educational approach to estimating this is to consider short-term operating costs and planned expenditure, less cash already expected to be available. There is no single universal formula that applies to every business, since the right approach depends on each company's specific operating cycle, industry and circumstances.

Also known as: Extended Internal Rate of Return

XIRR, short for Extended Internal Rate of Return, estimates the annualised return of a series of cash flows that occur on irregular dates.

Unlike simpler return calculations that assume evenly spaced cash flows, XIRR accounts for the actual timing of each cash flow, making it useful for analysing investments or transactions that do not follow a neat periodic schedule.

XIRR is more relevant to investment and financial analysis than everyday working-capital calculations, but it is a useful piece of advanced finance terminology for business owners engaging with investors or more complex funding structures. This explanation is educational and does not constitute investment advice.

Also known as: YTD

Year-to-Date, or YTD, refers to the period from the start of the current financial or calendar year up to the current reporting date.

YTD figures are commonly used to track cumulative performance during the year, such as YTD revenue, YTD expenses or YTD profit, making it easier to compare progress against budget or against the same point in a previous year.

Yield is the financial return generated by an investment or lending asset, usually expressed as a percentage.

The term is used across various financial contexts to describe the income or return generated relative to the amount invested or lent. This is general educational information only.

Zero balance describes an account or cash-management approach in which balances are regularly swept or transferred so an account is maintained at, or returns to, zero.

This is an advanced treasury and cash-management concept, more commonly relevant to larger businesses with multiple accounts than to typical day-to-day SME banking.

Zero-based budgeting is a budgeting method in which every expense must be justified from zero for each new period, rather than being automatically carried forward from the previous budget.

This approach can be particularly useful for SMEs looking to tightly control costs, since it forces a fresh review of whether each expense is still necessary, rather than assuming last year's spending levels remain appropriate.