Case Study – Confidential Invoice Discounting – Food Manufacturer

Established specialist food manufacturing company that had recently won several new contracts with multiple retailers.  Approached Orchard Business Finance for advice on how to take pressure off their cash flow and smooth out monthly peaks and troughs.

The company turnover stood at around £6 million and staffing levels fluctuated between twenty and forty staff dependent on the season.  Although the company had no financial problems there was borrowing in the form of Unsecured Business Loans and Asset Finance.  As a result, lenders approached direct by the Directors weren’t prepared to offer any further funding facilities.

We sat down with the Directors and talked through all aspects of their business and the pressures being experienced along with future growth plans and their requirements to grow the business. It became apparent very quickly that the cash flow problems were being caused.  As the result of average customer contracted payment terms being 77 days; purchase ledger showing average payments being made on 98 days; and three crunch payment dates during the month with the first being lenders payments, the second supplier payments and finally payroll.

The Directors recognised that average payments of 98 days were the main cause of the cash flow peaks and troughs.  Most importantly and despite the company being financially stable and having good contracts the Directors realised that they were financially vulnerable if they couldn’t smooth out the peaks and troughs.

As a solution we suggested Confidential Invoice Discounting as this would enable the Directors to drawdown up to 85% of the invoice value within 24 hours of it being issued. There was a level of reluctance initially as the Directors considered CID to be an expensive form of Invoice Finance. Once we explained how a CID facility operates and that it only becomes expensive if it’s used irresponsibly the Directors decided to proceed.

One of our trusted lenders offered this food manufacturing company a Confidential Invoice Discounting facility that allowed them to drawdown up to 85% of the invoice value and agreed a facility of £500,000 which also included payment protection and Director personal guarantees that were restricted.

Following a review with the Directors they are happy with the facility as they can now manage monthly supplier, finance and payroll payments with confidence. Additionally, they have been able to confidently approach other retailers and expand distribution of their product.

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