Championing Cashflow
Peadar O'Reilly, Venture Structured Finance Regional Director (North West), explains the role asset based lending can play in helping businesses manage
cashflow.
The old adage that ‘cash is king’ has never rung truer than it does today. Without healthy cashflow, businesses cannot hope to survive long – even in the best of economic conditions – let alone grow or proceed with acquisition plans.
When considered in the current credit-challenged times, cashflow management and forecasting takes on even greater significance.
The lack of available credit for businesses from traditional sources has led to an increase in enquiries into alternative funding options such receivables finance and invoice and asset based lending (ABL).
Research commissioned by Venture Finance among 1,000 UK accountants revealed the number of business clients refused finance by traditional lenders has virtually tripled this year. In addition, 60% reported they had seen an increase in business owners proactively seeking to learn more about alternative methods of funding.
Asset based options
Businesses looking to improve cashflow, both short and long-term, can consider a number of asset based finance solutions.
These include receivables finance, which enables funding to be leveraged against unpaid invoices without waiting for customer payment, thus delivering an immediate cashflow boost. Revolving receivables and inventory finance can be combined with fixed-asset and collateralised cashflow loans (loans collateralised against assets) to provide even more liquidity.
ABL unlocks the value hidden within a business by leveraging funding from the business’s various assets: the debtor book, inventory, plant and machinery or property. Such funding can then be used to ensure sufficient working capital to enable stability or to realise growth or turnaround plans. When delivered against receivables and inventory, ABL’s revolving nature means funds are readily available to support the long-term needs of a business’s sales performance, delivering a level of flexibility that a traditional overdraft or bank loan may not match.
In addition, ABL offers not only the required quantity of funding but also a certainty of that funding being available. Both are vital in providing businesses with the tools they need to improve cashflow management and enable accurate forecasting – crucial to success in today’s market.
Venture’s experience has shown the provision of ABL can provide a lifeline to companies in these turbulent times, offering businesses the extra headroom required to execute any restructuring plans. For companies willing and able to re-engineer, restructure and create a viable ongoing business plan, this facility can make all the difference. But only so long as the lender is brought in at the right time to work in partnership with the management team.
As an experienced independent asset based financier, Venture knows that regular two-way communication between the ABL lender and the client further enhances the cashflow management process. This relationship is all-important. As an ABL specialist, we believe that an intimate knowledge of every client’s business is also vital.
At Venture, we have a team of long-serving experts with not only real business understanding but also the time to work in close partnership with our clients. Our client-to-manager ratio is 15:1, compared with up to 70:1 at some providers, which is arguably too high to achieve an intimate level of client service.
Portfolio managers with a smaller client base are better positioned to really understand each client’s business, allowing the manager to identify and satisfy upcoming cashflow peaks and troughs within the business, sometimes even before the client, and acting fast to provide the right funding solution when it counts. Working in close partnership with a lender has never been so important in these fast-moving times. Cashflow can change for the better or worse almost overnight.
Summary
- Maintaining a healthy cashflow is a prerequisite for business survival
- Focused cashflow management is vital in any business climate
- Collateralised cashflow loans provide welcome breathing space for viable sustainable businesses.
By working closely with a trusted financial partner, cashflow requirements can be anticipated in advance, resulting in solutions being quickly identified at a time when speed is of the essence. Choosing the right partner today – someone you can trust – is not only vital, it's an investment for the future.
Peadar O'Reilly
VSF Regional Director (North West)
07920 801429
peadar.oreilly@venture-structured.co.uk
CASE STUDY
The Right Path
The experience of electronics equipment company, Path Group Ltd, illustrates how a business can use ABL finance to steady its cashflow following a management buy-out. Based in the UK, Path Group Ltd has advanced during its 20-year lifespan to become a global organisation. Under the brand name IXOS, the company designs, manufactures and distributes electronic equipment accessories, such as HDMI connection cables for home entertainment systems, computing accessories and protective casings. The management buy-out arose from the senior management team’s desire to grow and make the IXOS brand widely known in the home entertainment space. With a well-established international partner network and customer base, the company needed a financial solution that would help fund the planned buy-out and provide ongoing working capital following the transaction. After recommendations from both Litmus Advisory and the private equity and investment firm Beringea, Path’s senior management team approached Venture Structured Finance, who developed a bespoke package with a funding line of £4.5m. The ABL facility that we delivered comprised Confidential Invoice Discounting to provide ongoing working capital, bolstered by a Cashflow Loan. This gave the Path management team fast access to the necessary finance to complete the buy-out, minimising any impact on the actual running of the business. The funding also allowed Path to plan beyond the requirements of the buy-out transaction. Since the finance was provided on a revolving basis, via receivables, the facility could grow post-acquisition, in line with sales, helping reduce the strain on cashflow during the often-difficult post-deal phase. Once the deal was complete, the Path management team could concentrate on the vital task of growing their business. Within six months of the transaction, Path had achieved 18% growth in turnover against the previous year. Commenting on why Path Group Ltd chose Venture Structured Finance, and how the funding has helped since the management buy-out, Finance Director Tony Sanderson said, “Venture Structured Finance’s highly committed and professional team worked swiftly to understand our needs, providing a flexible package that met our requirements exactly. Without it, we could not have successfully completed the management buy-out. Since the deal, we have concentrated on growing the business and are enjoying some encouraging results.”