How a new traffic management company tripled turnover in 3 years and protected their cash flow at the same time…
Situation
A young traffic management company had succeeded beyond their wildest dreams – and it was creating a cash flow nightmare.
Within 12 months of operations, they won a contract that would triple their turnover. However, they did not have the working capital they needed to take advantage of this opportunity. Their very success put them in a nightmare situation.
Problem
Traffic Management is primarily a labour-hire business, so it is easily caught in the cash flow crunch. They needed to pay a weekly wages bill – BUT they could only bill their client monthly. Their credit terms meant that they got paid by their customers 45 to 60 days after the wages had been paid.
In working capital terms, this meant that they needed seven weeks payroll in cash in order to keep trading – a big ask at the best of times. That meant that the more work they won, the bigger their cash gap got.
Their customer base split was about 60% construction and 40% local government. Their customers in the construction industry carried significant risk, should those customers go into liquidation (a repeating problem with both large and small builders).
Solution
Fortunately, their accountant contacted Martin Cattach from FFB to find them a solution – one that would increase their working capital so they could take on the new contract AND one that would reduce the risk of debtor defaults and liquidation.
After reviewing the current trading position and the cash flow forecasts, Martin proposed the best course forward would be to use a debtor finance facility that included Trade Credit Insurance.
Martin identified that the company’s debtor management process was slow and cumbersome, so that implementing the debtor finance solution would require new and different procedures. FFB was able to bring in a specialist team member, who was an expert bookkeeper trainer. The company was able to update their debtor management systems and train their accounts staff, so the implementation was flawless.
Results
The new finance facility increased the company’s liquidity and enable their weekly payroll commitments to be me. It also provided insurance against the risk of debtor default that protected both the Traffic Management company and the lender – because the insurance mitigated the risk for both parties
The finance facility has been successfully in place for over two years, and the company successfully delivered on the contract that tripled their turnover. In that time 3 insurance claims had to be made totalling $26,000.00. If they had not been insured, that amount would have come directly from the bottom line of the Traffic Management company.
They’re now able to take advantage of new opportunities as they arise.
