Drawing on expertise: Helping a business recovery with £25,000 Invoice FinancePublished on 4th September 2019
Cashflow is vital for any business. When a large client takes too much time to pay, it will often mean serious cashflow problems for the small businesses that supply them.
But things can be very much worse when a large business fails.
If a large customer goes bust with a big pile of outstanding invoices the problems they leave to small businesses can become terminal. In the worst cases, the failure of a major customer could take your own business - and many others - with it.
At Rangewell, we can work to ensure that your business does not get caught in this kind of domino effect.
The failure of a major end-customer was the situation facing a client who came to Rangewell for help recently. Their business was in graphic design, they had a good reputation and things were going very well - until their largest client suddenly announced that it was insolvent.
“They were a blue chip business with a long list of clients in building services. They seemed to be thriving - so we didn’t worry too much when they were a little late one month with of our invoice. But then it happened again the next month, and things went ominously quiet. Then we had a call from our business contact - they were going into receivership.”
Our client was shocked when he realised that his business was going to lose their biggest revenue stream, with more than £75,000 of revenue. Not only did their future look less certain than it had, the money was already earmarked - staff needed their wages and the landlord for their London studio was owed rent. There were other suppliers who were owed money, and finance repayments to cover.
“When the client went down I immediately saw that we had some real problems. We just didn’t have the cash to stay in business.”
The designer did what he could to cut costs and managed to get some extra time to pay from some creditors. However, he did find some new business prospects. Some were happy to commission work, but the best terms that he could arrange involved a 60-day wait for payment. He could not keep his business open that long without some income.
“Waiting for weeks and months for payment is usual in our line of work. But we could not afford to work that way any more.”
Our client was desperate to get his business back on a sound footing and wanted to explore the possibility of a cash loan to cover the shortfall. We saw that his current financial position might prevent most lenders from providing the support he needed - finance in a turnaround situation can be difficult to arrange.
But we saw there was a possible solution - with Invoice Factoring.
Factoring is a type of Invoice Finance, that can provide a solution for businesses with outstanding debts or an adverse credit history. With Factoring, the security for the finance is based on the strength of the businesses debtors. This means that as soon as a business issues an invoice for work done, the finance provider company can provide an immediate cash payment.
Instead of waiting for 60 days or more to get paid, our client would be paid right away
“Suddenly, I had a way to get the cash he needed to pay off my creditors and keep my business afloat. Getting paid immediately is unheard of in our line of work - but now we could pay off everyone and keep the doors open.
As far as a I was concerned, Rangewell had worked a miracle!”
How Invoice Factoring worked for our designer client
With Factoring, the finance provider you send a copy of each invoice you issue to the funding provider. They will make an immediate advance, which can often provide 80-90% of the value of the invoice, though this amount will vary with different suppliers.
You will receive a second instalment once your customer pays, which will be the balance less the invoice provider’s fees.The actual charge will be based on your company’s risk profile, along with the sector you work in.
There were two other important benefits to our client from Factoring.
The provider had its own professional credit control team. This would chase payments on his behalf, removing an administrative task, and letting him concentrate on his core business.
Second, there was the opportunity to insure against customer defaults. A customer that failed to ay need never be a problem in the future.
If you have similar issues with late or failed payments, talk to the Rangewell team to see what we can do for you.
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