How a mine maintenance company grew 70% in 12 months and established a profitable specialist labour hire service…
Situation
The Company, based in Western Australia, had been established for five years and had a strong growth rate. Their principal customers were large mining corporations – the likes of BHP Group, Rio Tinto, Fortescue Metals and Newcrest Mining.
Its main line of business was providing maintenance solutions for the mining industry, covering both fixed and mobile plant. This covered services including specialised onsite machining, line boring, fabrication, field service and general machining maintenance.
The company had also identified a new opportunity – the need for specialist labour hire services in mining.
Problems
While their client list was impressive, it had some substantial disadvantages. One was their offshore process of Accounts payable (invoices). Another was the complex nature of equipment maintenance.
The complexity meant that often the initial purchase order would only cover part of the work, which meant that the balance of the work had to be authorised as a variation on site, then a variation invoice was required. Because of the need for variations, invoices would often take more than 90 days to settle – due to variation invoices needing to be provided in addition to the original invoice.
They had utilised Invoice finance previously, however the institution providing the Invoice finance facility would not accept an Invoice that had run more than 90 days without payment.
The effect was that on day one the Company would receive 80% of the value of the invoice and on day 90 their account was debited the same 80% of the invoice value. This was having a devastating effect on their liquidity and cash flow forecasting.
Solution
Fortunately, the Company used a General Management and Process Improvement consultant who knew Martin Cattach, from Finance for Business. They asked Martin to look at what could be done to fund the increased invoice terms and stabilise the cash flow.
After reviewing the financial position of the Company and discussion with the directors and management team, it was decided that what was needed was an Invoice finance provider that would fund the invoice for up to 120 days.
This was a challenge as 90 days is considered the maximum commercial terms available through the majority of invoice financiers. However, Martin was able to overcome that challenge.
Results
Firstly, the invoice procedure was changed so that two separate invoices were created – one to match the original purchase order and the second to cover the variation. This meant the full value of the job was not held up in invoice processing.
Secondly, Martin was able to negotiate with an innovative invoice finance provider to accept the terms of up to 120 days. This was achieved because of the strong (blue chip) quality of the end debtors and freed up substantial cash flow.
The Company turn over has grown 70% in the last 12 months. Increased liquidity and a stable cash flow has enabled them to establish a profitable specialist labour hire service to complement their own maintenance service offerings.
