Survey to help wholesaler avoid cash flow shortfall
We were recently engaged by a wholesaler to conduct a pre-lend survey to support their funding enquiries.
Following a period of disappointing sales, the company were anticipating a cash flow shortfall and took it upon themselves to obtain a survey that could be used by interested lenders when appraising their business.
Our survey found a business that was well suited to accounts receivable finance, with a strong debt turn and nominal dilutions. And while a few issues would need ironing out by any lender, our recommendations would enable them to pinpoint these areas and provide the facility our client required.
What did we find?
The survey discovered that the wholesaler’s sales were largely based on a ‘concession’ (consignment) model, and were backed by customers’ self-billing invoice/consumption reporting.
Although some issues would need addressing regarding proofs of delivery, the company had a very good debt turn and nominal dilutions.
However, any potential trade finance facility could be more challenging given their lengthy credit terms with major suppliers, and stock typically spread across thousands of customer locations.
What recommendations did we make?
For an accounts receivable facility, we recommended that invoices could be funded to 90% given the profile of the ledger, subject to the review of service agreements, which we also suggested so the lender could understand the terms in a collect out scenario.
Concentration limits were suggested for their primary customer, a major supermarket, with all PODs to be obtained from the carrier and stored centrally to ensure the lender would have direct access to this documentation.
For a trade finance facility, we recommended that any funder should obtain credit insurance. A landlords waiver should also be obtained for one of their warehouses, where some stock could be recoverable and sold.
It was also highlighted that the packaging on the majority of goods is customer branded, which would need removing in the event of sale to the wider market, and the funder should be aware that some customers require a continuity of 3 months’ worth of stock support in the event of failure, meaning continued trading support would be needed from key staff in such a scenario.
However, overall the business was fundable, and the co-operation of staff during the survey made it possible to obtain all the information required to conduct a thorough appraisal.
