WHOLESALE HEATING & AIRCONDITIONG COMPANY – DEBT RESTRUCTURE

The company’s external accountant reached out to Atlas Broker Debt Advisory to discuss a client’s funding requirements and limitations with current facilities.  After an initial discussion with the client and review of current operations it was evident that the business lacked the appropriate funding lines to support the business, branches and expansion.

Cash flow for the business was an issue due to the mismatch on timing for supplier payments, conversion of stock to end sale and then trading terms offered.  The cash cycle could be corrected with the implementation of both a Trade Finance & Invoice Finance Facility.  The introduction of a trade finance facility allowed for funding supplier invoices for both International & Domestic creditors.  The trade facility essentially extended the cash cycle by up to 120 days depending on the timing on the conversion of the sale of stock.  The invoice finance facility would then kick in once the client converted the sale of the stock, essentially generating the invoice to the debtor.  The invoice finance facility proceeds would then repay the trade facility, allowing any excess funds / margin to go back to the applicant company.  The change of debt facilities has corrected the cash cycle to ensure that the facilities work hand in hand to support the creditor and debtor cycles.

An underlying additional benefit of the facilities has seen the business re-negotiate supplier terms and margins due to prompt or COD payment ability.  The client has also realised the ability to purchase in bulk to cater for the various divisions (metro and regional outlets), for peak or seasonal trends aligned to key winter and summer demands. 

The directors wanted to look at traditional bank loans, commercial bills or unsecured overdrafts, however when presented with the benefit of a combined Trade & Debtor Finance structure they saw the funding limits surpassed any traditional banking lines.  This is a result of the banks assessment based on balance sheet equity held in the business, directors personal asset backing and historical profitability performance.  Looking at alternative forms of funding also ensured the directors personal assets did not form any part of the business lend.