Case Study 3
Working Capital Intelligence
Our client, an engineering business with good prospects and an annual turnover of £3m, emerged from Covid and was now looking to grow but experiencing working capital challenges. With steel prices rising it was proving difficult to get good credit terms. Debtors were taking longer to pay resulting in a lengthening cash cycle.
Introduction
We were invited by the lender to assess the challenges, review current financing and suggest enhancements to assist business growth.
A review of the business showed:
Poor credit rating
Suppliers seeking up-front payments for steel – difficult for client to fund because customers taking longer to pay
Business generating sufficient cash to meet finance payments but not enough to support working capital movements
Challenges
We worked closely with the management team and implemented the following solutions:
Working with a partner, Lightbulb Credit, the credit rating was enhanced. We introduced a supply chain finance facility – enabling raw materials to be purchased from suppliers on a pro forma basis and changing the dynamics within that supplier relationship and reviewed credit terms with customers.
This resulted in a number of positive outcomes for the client:
The enhanced credit rating and the supply chain finance facility changed the dynamics within supplier relationships, with pro forma payments resulting in better pricing and delivery from suppliers.
The supply chain finance facility provided up to 90 days credit which improved the management of workflows within the manufacturing cycle. Cash was freed up to enhance serviceability of the finance obligations and enhanced invoice finance facilities, particularly in respect of export clients generated further cash against sales.
As a result, the business experienced a working capital improvement of approximately 10% of turnover. Finance providers took comfort from the improved cash position and bought into growth going forward and further funding facilities were provided to enable machine acquisition and a growth in turnover, contributing to a stronger bottom-line performance.
