Our client came to us experiencing a severe cash flow squeeze they needed to remedy asap.
A chemical manufacturing business, they had experienced rapid growth consistently doubling turnover year after year in a short space of time.
While profitable on paper, in the past to support their accelerated growth they had used the fastest credit they could access rather than the best loan type and right lender for their circumstances.
Attempts to rectify this with other finance brokers had led them to a Trade Finance and Invoice Finance solution at a lender whose policies worked against facilitating the cash flow support their business needed.
It was the epitome of right loan solution but wrong lender.
It cannot be stressed enough that there are brilliant cash flow lenders and there are lenders who are absolutely the wrong choice for a lot of circumstances.
Trade finance is a line of credit to support the purchase of material supplies. It’s a great solution for manufacturing businesses and any business that has high material inputs and bills on terms that has them being paid some time later.
The problem our client was facing was the lender they had been placed with does not prioritise Trade Finance as a solution and often takes 21 days to approve a supplier invoice to be paid under their Trade Finance line of credit.
That’s too slow.
Many businesses have similar complaints about this lender’s operational support for invoice finance and describe it as unworkable for their circumstances (commonly it’s manufacturing or transport business owners making these complaints).
The client’s cash flow situation was further complicated by expensive Rent to Own Truck Finance and an unsecured line of credit that paid back over a very short period of time, with an astronomical interest rate and daily direct debit repayments.
Their monthly expenditure on these last two features alone required a whopping $91,000 a month in payments to be serviced.
Looking at the client’s asset register we recognised that we could use the vehicles and other assets as security to raise capital and their turnover supported a far larger trade finance facility.
A the right lender the trade finance could be paid out from an invoice finance facility giving our client 180 days total cash flow support from a lender who we knew would support this finance structure to actually work.
Our solution brought down the monthly outgoings for finance by almost $70,000 a month.
A simply massive shift in cash flow.
Here’s how the solution was structured:
- $500,000 limit Trade Finance Facility
- $1.25M limit Invoice Finance Facility
- $700,000 Capital Rase against Plant & Equipment
Growth or not – this kind of solution and choosing the right lender is the difference between winning in business or not being in business.
Why Choosing the Right Lender Matters
As far as long term outcomes go, choosing the right lender can be more important that choosing the cheapest rate on offer. This is because how a lender manages their processes for working capital solutions like trade finance and invoice finance, which are both a line of credit solution, makes a massive difference to your operational effectiveness.
In this case study, the trade finance and invoice finance the client had before coming to us was not working. As a manufacturing business ,which was growing significantly, they needed a fast solution when their stock levels were depleted. However, their previous lender took at least 21 days to process trade finance requests. This meant the business owner could not replenish stock and take advantage during their seasonal periods of strong sales.
They were hamstrung by poor process and policy right when their business was making great sales and moving tonnes of product.
To cover the lender’s inadequacies they had turned to a fast unsecured loan provider. While this got them the capital they needed to buy material supplies fast, the lender they had chosen had a very high rate and daily direct debit repayments. While they could manage these repayments in their peak season of sales, they were stressed and under tremendous cash flow pressure in the offseason. Worse than that, the two solutions they had cobbled together to make sure they could continue to operate were more expensive than they needed to be.
The Right Solution Should Actually Improve Your Circumstances
We knew which lender would support this customer the right way. Structuring their lines of credit correctly gave them up to 180 days of cash flow support from when they paid their suppliers right through until their customers paid their invoices. By getting this right we were able to lower their monthly finance commitments from $91,000 per month to $21,000 – a massive difference!
If you need help with a line of credit for your business talk to an expert.
