Funding in a New Zone (Published May 2004)
Many people think of "trade finance" as the funding of imported,
pre-sold, traded goods to insured customers. For example, a major retailer wants
to order something and the importer buys in the Far East. LCs are required to
finance the import and the importer does not have the financial capacity to
provide the LCs.
Of course, we do that. But that is much less than half our business, and it
is not the most exciting part. "Trade Finance" to us is funding a transaction
that our clients cannot fund themselves:
- Exports as well as imports
- Not all of our purchases
are pre-sold
- Both purchase and sale in UK is a substantial part of our business,
and
- Purchases from several suppliers for our client to manufacture into their
product.
We have no rules, other than to operate safely and to high standards of service
and ethics. So each enquiry is a new challenge to see if we can deliver what
that enquirer seeks.
The call from BioZone Ltd, offered
such a challenge. BioZone are a substantial manufacturer, established for over
a decade. Their mission statement declares they: "aim to be a global leader
in providing innovative and unique solutions to requirements in the animal containment
market. The focus of our solutions is based on the needs of the scientist, the
animal carer and animal welfare".
The products designed and made by BioZone offer the animals essential to drug
testing a far more humane and safe environment than was available before their
products existed.
"We have many clients whose products are innovative and make a contribution
to a better world, and we much enjoy assisting them."
But BioZone had a problem. They had been very profitable for many years but,
following "9/11", orders temporarily fell away. There followed a sudden recovery
so they now have several substantial orders from universities and pharmaceutical
companies - the largest in Germany, but others in the USA and the UK. As can
happen to capital goods' suppliers, their customers wanted product equivalent
to six months of normal sales, all to be delivered within 3 months!
They had physical capacity. Their balance sheet remained strong because of
the substantial asset base they had built up over many years, but they needed
to increase liquidity. They would struggle to finance the 10-week manufacturing
and payment cycle for these large concurrent orders.
They have 27 material suppliers, both in UK and overseas, from which they manufacture
the finished product. Most suppliers would continue to supply on credit, but
needed to be paid on time, so we paid them. A couple of large foreign suppliers
required Supplier Undertakings. Our funds and credit enabled them to obtain
all materials required.
The risk to us in this case, upon which we focussed, was whether they could
buy everything they needed to manufacture and meet the customersĀf orders on
time. A complication was the existing bank's debenture making it necessary for
the manufacturing to be undertaken in a separate company so as to avoid complex
priority agreements.
We have paid 27 suppliers and customers are paying. BioZone has delivered,
and now has gained a new finance partner should they need us again in the future.
We have many such clients whose products are innovative and make a contribution
to a better world, and we much enjoy assisting them.
Written by David Ross Director
Download
the Article 'Funding in a New Zone' at www.fairfaxgerrard.co.uk/docs/BusMon 0504
Funding in a New Zone.pdf
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