Tapping into our Liquidity (Published March 2004)
Sometimes we choose our direction; often we respond to opportunities.
Solving new problems all the time keeps us on our toes.
O'Hagan Contract Interiors Ltd was also taking a new direction. O'Hagan was
well established in supplying "designer" office furniture ex-stock to distributors,
but was moving towards supplying to major contracts. This was changing the nature
of its business and involving new suppliers in Europe and substantial values.
The first such contract was the supply of bespoke German kitchens to a house
builder who is building 1,000 houses over three years. It is an important contract;
the projected turnover to O'Hagan is more than €6m.
"It is working like a dream because of the substantial qualities of the
supplier, the customer and, of course, the client."
The supplier could not insure debts from O'Hagan so wanted funds before delivery,
but that was at least 60 days before the house builder customer was to pay.
Garret O'Hagan (director) and Joe Flood (contracts manager) knew that, before
they could commit to the contract, they needed to arrange financial help. They
needed to tap our liquidity or the contract might sink them. They were introduced
to us by Peter Kerrigan, of Celtic Invoice Discounting. Celtic is an independent
factoring company in Dublin, but it does not offer either trade or contractual
debt finance or, even harder, a combination of both. We had time to plan implementation,
which we did with substantial help and advice from Peter. Specific funding issues
are:
- The customer is buying over three years under a JCT type contract.
- The supplier agreed to sell to us on 30-day credit for a 5% discount; we
issue a Supplier Undertaking for each delivery.
- The client and customer are in Dublin. We had not previously used our agreements
in Ireland and several of them had to be changed.
A Supplier Undertaking is the best buying format for the client for this type
of supply, being much cheaper and safer than the use of LCs. Suppliers can insure
debts from us if they want to.
It is working like a dream because of the substantial qualities of the German
supplier, the house builder customer and, of course, Garret and Joe.
Limerick Council has built new offices and O'Hagan had the contract to supply
the furniture. When the building was ready three suppliers in Europe had all
to deliver in the same week and the resulting single sales invoice was more
than €1.2m. Funding that was fairly straightforward, although only because
of the good partnership we have with Garret and Joe.
The combined finance facility O'Hagan required was €1.15m.
The supply of kitchens continue, and we are looking to finance further contracts
this year.
Meanwhile, we have shown Celtic Invoice Discounting what we can do and now
have a friendship with them and a flow of leads in the Emerald Isle, where we
hope to build a substantial trade finance business this year.
Written by David Ross Director
Download
the Article 'Tapping Our Liquidity' at www.fairfaxgerrard.co.uk/docs/BusMon 0304
Tapping Our Liquidity.pdf
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