Chilled balls from our very own Swedish Chef (Published February 2006)
Rohi International Ltd is the brand owner of "Swedish Chef". It sells chilled Swedish meatballs to supermarkets in the UK. The owners are Swedish, although Rohi is a UK company.
It sources from a major Swedish chilled and frozen food manufacturer, which needs a secure payment covenant. Rohi could not offer this. Credit terms in Sweden are extremely conservative; cash deposits, bank guarantees, or letters of credit are the norm.
In order to meet its security needs the manufacturer had insisted on getting paid direct by the UK supermarkets, paying Rohi a commission. But to grow the business Rohi needed to become the principal, and to get control of its finances.
Traditional factoring offers a solution by paying following delivery to the supermarket. But Rohi had to hold stock in the UK of two weeks forecast sales of each recipe. Rohi’s owners being based abroad complicated factoring as, initially, did 100% debtor concentration. There are also particular funding issues with fresh food.
"...simple circumstances can still require elegant finance..."
Our strong credit rating means we have 60 days open account terms with the manufacturer. This time covers the UK stock-holding period and 35 days credit given to customers. We buy from the manufacturer, sell to Rohi at cost, and recover from the customer debt assigned to us. Thus there is normally no interest cost, and our charges to Rohi are very economic, which is crucial given the tight margins available on sales to this group of customers.
This is not the most exotic of our clients, the spice is in the sauce, and the source! But simple circumstances can still require elegant finance. Manufacturer, Rohi and the supermarkets are happy and Rohi can confidently expand infinitely with new products and customers.
Written by Glyn Powell Trade Finance
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the Article 'Chilled Balls' at www.fairfaxgerrard.co.uk/docs/BusMon 0206 Chilled Balls.pdf
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