nil recessus carborundorum
success story...factoring
The problem for this company was that its credit control wasn't any too structured, or even prioritised. And it was compounded by slow-paying customers. The directors were hands-on, often working the press or the finishing kit, and they tended to chase debt on an ad hoc basis. What that meant was the printer was regularly paying its suppliers within 30 days, but that it often wasn't being paid by its customers until 90 days or even more.
"We had to fund 60 days or more of trading out of the overdraft, and while we're profitable, we have no cash," says one of the directors. "We always had the option of delaying payments to our creditors, but we felt the vicious circle of late payments had to stop." What finally forced this printer into action was an impending VAT payment that it simply didn't have the funds to cover. And at this point, Zest4Funding stepped in to recommend a factoring arrangement. £125,000 debt The printer had a debtor book with a value around £125,000. Zest4Funding negotiated a deal with a factoring company that paid the printer 85% of each invoice's value immediately minus a service fee. As new invoices were then raised, the factor made available up to 85% of the gross invoice value within 24 hours of issue. The remaining 15% (less a discount fee) was paid by the factors to the printer once the invoice was paid.  The cherry on the cake was that we repaid our overdraft, and now our houses are no longer under charge to the bank!
 Immediate cashflow injection Being paid 85% of its £125,000 debt right away gave the company an immediate cashflow injection of £105,000. This was used to pay off the overdraft and the outstanding VAT; it left around £35,000 extra for working capital. Credit control was suddenly in the hands of a professional agency, and the printer saw an immediate difference in the time it took for invoices to get paid: its Days Sales Outstanding average shrank to less than 55 days. Cherry on the cake The factor also undertook to credit-check all customers, and "the cherry on the cake," says a director, "was that we got to repay our overdraft and that means we revoked the personal guarantees. Our houses are no longer under charge to the bank!" The printer was also pleased to find that it had the option to insure its debt against non-payment. Because one of its best customers - a local retail chain with six outlets - accounted for more than 35% of the printer's business, the factor suggested for security that this customer's debt be insured against non-payment. "We don't expect that we'll need to call on that facility, but it doesn't cost us much to be sure," says the director. |
what is...factoring?
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who can benefit from...factoring?
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The pages of the printing trade press have recently read like a Domesday roll-call of print's great and formerly glorious. Who could have predicted the failure of Borcombe SP, Kelvin Print Group, Quebecor, Capital, Printhaus, Butler and Tanner, Celloglas and more? With margins on print lower than they've ever been, the current global economic crisis is magnifying the cracks in every print business model. But for every bad news story, there are plenty of success stories. Here at PrintSpeak, we decided to pull together a weekly newsletter looking at printers who recently hit a sticky patch - and what pulled them through. We hope it will provide our readers with food for thought. A struggling business is not necessarily a failing one - and knowing who to call is half the battle. In the coming weeks we'll be looking at subjects including factoring, debt collection, credit management, VIAMBOs, cost rate reviewing, credit insurance, financial restructuring and more - building a library of business know-how and giving you the contacts and knowledge to ride out the recession. Karen Charlesworth published topics |
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