This week has seen the conclusion of a deal involving a food business which made an initial enquiry some months ago. The business has annual turnover just under £0.5m and as at this week was owed by its customers £95k.
The business sells to a mix of customers and puts terms of ’30 Days’ on its invoices. If, and its a big if, customers all paid to terms the sales ledger balance wouldnt be £95k but would be nearer £40k. Its a reflection on the payment culture we have that this isnt the case and the actual balance of £95k points to an average collection period of over 70 days.
Until this week the business operated with the help of a bank overdraft with a set limit of £35,000. With the implementation of an invoice finance facility the bank has reduced the overdraft facility to £5,000 (representing the fact it has lost its major security).
The invoice financier released £62,000 and added to the bank facility the business now has accessed over £25k of additional working capital.
The additional funds will ease some critical supplier relationships and allow for business growth. The invoice financier will take over the collection job and over time it’s hoped the average 70 day collection period will be reduced. In this case there are clear benefits and the costs are offset in a quantifiable way. There are unquantifiable advantages and benefits too not the least of which will be that supplier relationships are to be repaired and built upon.
Next week the invoice finance world holds its annual conference in Birmingham, a bit of a departure from previous venues like Barcelona, Venice and Prague, but handy for me!
The highlight of the week undoubtedly was a trip on the Thames Rib Experience, a unique way of enjoying the remarkable sights of London from the Thames.