Case Study Cashflow

We were contacted by the Directors of a long - established business supplying security and monitoring equipment to hospitals, nursing homes and other healthcare providers. The business had significant cashflow issues and the Directors were considering closing the business as they had exhausted their credit facilities.

We carried out a comprehensive review of the businesses operations and identified the root causes of the cashflow issues. If the problems were not addressed the company would have to close as the Directors no longer had cash resources or facilities to continue to support the business.

We identified the main problem was caused by the credit terms imposed on it by its Suppliers who required all equipment to be paid for at order stage. The Company’s suppliers are based overseas and were no longer willing to advance credit to Irish firms following the recession in 2007 which made it very difficult to obtain credit insurance. The Company’s customers were taking 90 days and longer to pay for the equipment after it was installed and the Company had to fund the intervening time gap. There was a further risk as the end customer to whom the equipment was supplied to and where the equipment was installed often used sub- contractors through which our Clients had to invoice. Therefore, the end Client could pay the subcontractor who if he failed to pay our Client there was no recourse. Such were the Company’s cashflow issues that orders placed for customers for upgrades and spare parts for the service team could not be placed until cashflow allowed. This was damaging existing customer relations and holding back the Company’s ability to grow its sales.

Our Clients were the sole agent for the Equipment which had little or no competition. We therefore advised our Clients to change their terms and conditions with their customers which they agreed to do so. Going forward all customers had to pay for the equipment upon order. As our Client made a 60% margin on the equipment they not only benefitted from a cashflow point of view but also realised their 60% margin at order stage. Installation and commissioning invoices were all payable within 30 days.

The Company prospered with this change and its cashflow improved very quickly. The Company did not lose any orders because of the change and no longer requires overdraft facilities and has significant cash reserves. The Company has grown it sales significantly as it now has the working capital to do so and does not have all its cash tied up in Debtors.

If your business has cashflow/working capital issues calm us today to see how we can help you.