Driven to succeed: helping a small automotive component business
The internet has created new and exciting ways for businesses to work together. It is now possible for a small specialist business based on design skills in the UK and calling on manufacturing capacity in India to supply major manufacturers throughout the world.
By using the internet to share engineering drawings and design parameters, more cost-efficient ways of working can be used to reduce costs and increase quality. But although these 21st-century working practices are effective, they must still depend on the long-established financial principles of sound cash flow management.
Large companies, slow payments
At Rangewell we recently worked with a British engineering services company. Lead by a technical team with over 150 man-years of relevant experience, it has world-class expertise in plastics, embedded hardware and software design and vehicle electronics.
This design expertise is backed by the manufacturing facilities of a long-established automotive component supplier based in India. It allows the business to provide a design service and manufacturing capacity that is in demand by some of the largest names in the industry.
“We are proficient along the entire plastics value chain – design, analysis, tool engineering, as well as hardware design, embedded software and testing. It means that we can create solutions to tight engineering briefs - translate them into production-ready designs - and then produce in any quality required.”
With the automotive industry facing the challenges of new fuels and ever tighter environmental regulations, it is becoming essential for large manufacturers to deliver new answers. Our client is instrumental in providing these solutions, shortening the development cycle and reducing costs.
The business uses the latest technology to allow them to provide these reduced costs and to short development times. They are a newcomer to the industry and have only been in business for a year - but already they have established close working relationships with some of the world’s leading automotive manufacturers.
“We have contacts among some of the key automotive manufacturers. It means that now, when one of the major German manufacturers needs a new component, they can outsource their development to us. We can handle the design, costing and production in-house. It means that their needs are answered faster and more effectively because we have some of the most experienced people in the sector working in our offices.”
One of the reasons for the success of the business - and its rapid growth since launch - has been its ability to deliver new short and long-run components in the shortest possible time. But one of the old challenges of the industry was becoming a problem.
“Vehicle manufacturers have been outsourcing component manufacture to specialist suppliers since the industry began. These days, with the ever increasing complexity of automotive systems, it is more prevalent than ever. The problem is that we are a small business - and our customers are very large corporations.
Outsourced suppliers have always faced this problem doing business with large marques. They recognise that they can’t build cars without us - but they are still slow when it comes to paying.”
Development, production design, the production itself and delivery from India all mean costs which, as a small business, our client was finding difficult to afford. The business was facing ever wider gaps in their cash flow as they grew and, although there were new customers ready to call on their services, the cash they needed to provide those services simply was not there.
“We find ourselves waiting 90 days or more for payment. It is not unusual in the industry, but it’s difficult for us to sustain. Things are not made any easier by having an international base for our business either.”
Many SMEs working with large customers find that they face real cash flow problems caused by late payments, and the problems become more severe the larger the customer.
We saw that Invoice Finance could provide the answer to our client’s problems. With an Invoice Finance arrangement, a lender will provide a cash advance as soon as an invoice is issued.
Our client could receive 80-90% of the value of each invoice as soon as they issued it - which they could do on a monthly basis, charging for development as well as production of components.
They would then receive the remainder once the client settled, less the lender’s fees for the service.
With the client’s customers including some of the most prestigious automotive manufacturers in the world, we knew that there would be no difficulty finding lenders to help. Most Invoice Funding providers will base their decisions on the creditworthiness of end customers, and with blue-chip names on their customer list, we were able to get the most appropriate lenders to compete with each other for the work.
We found a bank with an international base and a specialist Invoice Finance division which could provide the expertise to deal with this type of finance across national boundaries.
They were familiar with the needs of international manufacturing and had specialist teams who could support our client, wherever in the world they would do business in the future.
The initial facility had a limit of £50,000 per month, which would reflect current workloads, but with the scope to extend as the business grew.
Take your business further
Whether or not your business is ready to trade internationally, an Invoice Finance facility could be the answer you need to take your entire business further, accelerate your cash flow, and support your growth.
There are many types of Invoice Finance so it is essential to get the type - and the supplier - that is right for your business.
As experts in business finance and with contacts across the entire UK lending market, we can help you find the supplier you need, and help you shape an arrangement to your business’ circumstances.
So, if your business has a question that Invoice Finance could answer, find out more about the solutions that Rangewell can help you find. Call us now on 020 3318 2613