No Money, No Credit, No Problem (Published March 2005)
David Ross and Frances Walsh on survey.
It was 1pm and we were nearing the close of our second meeting with
a prospective client. After the first meeting they had put their purchase data
into our spreadsheets so that we could evaluate their need and the benefits
they would get from our facility. We had sent a draft offer letter and had returned
to finalise the detail.
We were talking to the two directors who had run their manufacturing business
for about 20 years and had current sales of about £4m. But they had been through
a difficult time and now no suppliers would give them significant credit. They
make useful products for quality customers and their factoring company was advancing
85% of the ledger. Their manufacturing cycle was quite short, but it still required
admirable ability to keep going with no supplier credit at all. They spent a
large part of each day on cash management.
"Our client spends less time on cash management, time they can devote to their
business."
When we had got to the point that the indications were positive I was asked
the tentative question: "Do you think you will accept us?"
Followed by: "If you will, I will let out a loud 'whoopee' when you
have gone".
I was very surprised. These are quality people and we are offering them something
that we do every day. But it seems that we have no direct competition in this
field and these chaps could now see light at the end of their tunnel.
It is very rewarding to be offering something that is so welcomed by so many
new clients. So what are we doing?
This client, like many others, is manufacturing or assembling in the UK, although
others may import items, which is equally no problem. The reason these companies
cannot get credit is for all the normal reasons – they are recent starts, or
restarts, or in a CVA, or coming out of administration, or 'turnarounds' having
had a couple of poor years. We have written here about many specific examples
in the past.
Factoring is not a sufficient answer to this problem; they also need credit
from suppliers.
For this client we buy on normal credit from 13 key suppliers, all of whom
can insure debts from us. We buy when we know how we are going to get our money
back. That is the skill, and we are now well systemised. So here is a summary
of this facility:
- We don’t usually use any money; the facility is funded by supplier credit,
so it is economic for the client.
- Our charges are usually exceeded by cost savings the client makes by
sourcing more cheaply and less frequently – so we cost nothing.
- The client spends less time on cash management, time they devote to the
business.
- And, if they are factoring, they put the factor under less pressure.
We left before 2pm, hearing the 'whoopee' as we left. We went to our next appointment,
a manufacturing company 10 years old that had a flood two years ago. All the
machinery had been replaced but they had not been paid the huge consequential
loss insurance claim. Thus their accounts showed losses and, you guessed, they
are very short of supplier credit. Their sales are £2m, but they have spare
capacity and can grow, if we can finance the purchases. The situation here is
more complex for reasons specific to them but we hope the end point will be
the same.
Our liquidity solves a problem caused by a flood, without money.
You have to smile.
Written by David Ross Director
Download
the Article 'No Money, No Credit, No Problem' at www.fairfaxgerrard.co.uk/docs/BusMon 0305 No credit No Problem.pdf
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