Working Capital Makes a Difference
09th Mar 2010
This long-established sportswear manufacturer was faced with a dilemma - to source materials from a new overseas market at a substantial discount but at strict net monthly terms or to continue using their existing supplier with 90 days to pay.
The managing director of the company said, “This deal was very attractive to us and we estimated that it would make the difference of around 7% improvement in margin per annum. However, we could not ignore the cash flow pressures as a potential opportunity cost, so we looked for facilities which we felt would prove more flexible than our overdraft”.
The company entered into a Confidential Invoice Discounting agreement which, at a 85% prepayment, released an extra £750,000 working capital into the business - capital that proved vital in seizing this excellent opportunity.
Revised cash flow budgets demonstrate that the new schedule of supplier payments were all met from this increased facility and the company has consequently achieved in excess of 9% increase on gross margins during the year. The managing director said, “I don’t feel I am just a number. I feel that I am working with a ‘business partner’ who genuinely wants to see my business develop even further.”
“We looked into a wide range of facilities and now recognise that the most flexible way to finance our business is Invoice Discounting. Our overdraft facility could no longer keep pace with our order book and could not supply the funds we needed. Furthermore, Invoice Discounting makes medium term forecasting far more certain for our business. And the way they actually administer the facility means, ironically, that I always benefit by quicker access to my cash than if I had received a cheque from one of my customers today.”