A £30,000 refinance solution for a solicitors' professional needsPublished on 25th February 2020 2020-02-25T12:00:00+00:00 - Last update on 29th February 2020 2020-02-29T15:08:59+00:00
Keeping cash flow positive
As with any business, cashflow is a constant challenge, and in this respect, professional practices are no different. When funds are not available, bills can't be paid, and the practice cannot continue to trade.
This is a particular danger for professions where the highest standards of financial probity are required. The problem is that many of the solutions that are readily available for general business users are not suitable for professional practices.
For example, many professional practices, including solicitors, are prevented from using solutions for cashflow issues such as Invoice Finance by the standards of their professional body. This can result in problems when clients are unable or unwilling to provide staged payments on long and drawn-out cases.
We were recently approached by an accountant whose solicitor client had run into a £30,000 shortfall in funding.
“Our client had a thriving practice and we had used him ourselves in the past, as well as taking care of the financial side of his business. However, despite the volume of work he was taking on, his practice was experiencing cashflow problems.”
The accountant recognised the cause of the difficulties. As a solicitor dealing in corporate disputes, his client had many high-value cases that could take months or years to settle. This could be a lucrative sector and certainly had the potential to generate substantial fees but, in many cases, those fees will not be paid over in full until the case is dealt with and matters such as appeals are finally over.
Even when a monthly fee had been agreed, large clients were frequently slow in paying.
“Large customers can tend to be among the worst payers in most business sectors. We would usually recommend an Invoice Finance solution. Factoring or Invoice Discounting can ensure that clients have an income when they complete a job, rather than having to wait weeks or even months for a customer’s accounts department to pay an invoice.”
Invoice Finance solutions
With most types of business, when there is a problem caused by slow payments, an Invoice Finance arrangement can provide a solution. If a business makes a monthly billing on a particular account it can enjoy a regular monthly income; the lender will provide a cash advance of 80% or more of the invoice, with the rest paid, less their fees once the client eventually settles.
However, this is not possible for solicitors under the profession’s guide to practice.
Looking at the figures, the accountant saw that cashflow was starting to become a real problem for the solicitor’s practice.
But on talking to his client, the accountant realised that the problem had already come to a head. As a solicitor with a thriving practice, many lenders were happy to do business with him, and the solicitor had no difficulty in raising small loans as he needed them. This meant that over the years he had amassed debt of around £25,000 to deal with short term cashflow shortfalls.
The accountant saw that the repayments were themselves becoming the case of cashflow issues, and making his clients position rapidly worse.
He asked Rangewell to find a solution that would let his client deal with the existing debt and put his finances on a better footing.
We saw that the immediate need was to refinance the outstanding debts. There were several potential benefits of consolidating the various existing loan commitments into a single arrangement:
- Reduced monthly commitment - consolidating loans should mean that the administrative workload, as well as the monthly payment, should decrease
- Reduced interest costs - by refinancing to a lower rate, and perhaps to a more suitable type of loan, it may be possible to save on interest costs and reduce monthly outgoings
- Increase borrowing - making better use of lending could allow more funds to be provided, which might provide a financial safety net for the client
At Rangewell, rather than simply approaching existing lenders, we always look into the possibilities of refinancing with another supplier. We have found that this approach can often provide the type of reduction in cost that clients need.
In the case of the accountant’s client, we found a lender which could cover all his existing loan commitments and replace them with a single loan. Our ability to work with all lenders across the market ensured that his rate was lower, his monthly repayments were more manageable, and he was able to borrow an extra sum to ensure that his cashflow would have support in future.
£30,000 at just 8% over 5 years
Monthly repayment of £580
At Rangewell we can help you arrange all types of business funding for your clients - helping you deliver an even better service to them, and creating a potential additional income for you.
Simply call us or find out more here.
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