John purchased a building services business a year ago and with our help has successfully transformed the business through:
- Right sizing their operational costs
- Increased their productivity through correction and improvement of processes and detailed position descriptions and workflows
- Implemented technology to automate the previously manual sales to product delivery cycle
- and flipped a 80/20 domestic to commercial customer sales ratio to 20/80 domestic to commercial customer sales (better margins and volume in commercial)
What a change he has made – not only are sales up by 30% but the customer contracts signed are longer term so create greater certainty.
His current problem – his terms of trade are killing him – suppliers on 30 days and the new commercial customers out to 60 to 90 days with the BAS owing – cash flow!
While pointing out the benefits of debtor/invoicing finance of speed and flexibility etc., some interesting obstacles were raised by John.
The cost of bank finance was recognised while the slightly higher cost of debtor financing was concerning.
I pointed out that the flexibility (and all of the other benefits compared to banks) of debtor/invoicing finance allows him to do so much more with his working capital.
It also means the funding limit can move with him as he grows.
His concern was that he might be seen by clients that he were in some distress with debtor/invoicing finance in place.
I argued that his messaging to clients should be that he is being a canny and commercial business owner making the most of is working capital, taking a very contemporary approach to working capital for stability, growth and reliability of service delivery to customers.
Isn’t it more prudent and careful to be across your working capital?
The client also was concerned that their suppliers might view them as a credit risk with debtor/invoicing finance in place.
I suggested that there was in fact an opportunity for them to negotiate different trade terms with their suppliers if those offered a discount for volume purchases (with more certainty of longer term commercial customer contracts) and earlier payment of invoices.
The scary but awesome scenario for John are the opportunities coming after the first few months with their new commercial customers. He cannot do it without working capital.
His comment – OMG – how do I do the work?
I just smiled. The answer was obvious.
Attribution: Stuart Craig is a partner at 888X. 888X are corporate transformation and restructuring experts who focus on solving profitability and cash flow problems with an aim to growing a business to make it more productive and profitable.
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