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success story...


This week's Survival Guide features a printer valiantly trying to plug a hole between paying and being paid - until they outsourced their credit control to get a cash injection of £80,000

This company is a small printer, turning over around half a million pounds each year, and employing six people. Its cashflow was mainly dependent on a bank overdraft of £50,000, which was personally guaranteed by its two directors, whose houses were put up as security.
The problem for this company was that its credit control wasn't any too structured, or even prioritised. And it was compounded by slow-paying customers. The directors were hands-on, often working the press or the finishing kit, and they tended to chase debt on an ad hoc basis. What that meant was the printer was regularly paying its suppliers within 30 days, but that it often wasn't being paid by its customers until 90 days or even more. 

"We had to fund 60 days or more of trading out of the overdraft, and while we're profitable, we have no cash," says one of the directors. "We always had the option of delaying payments to our creditors, but we felt the vicious circle of late payments had to stop." 

What finally forced this printer into action was an impending VAT payment that it simply didn't have the funds to cover. And at this point, Zest4Funding stepped in to recommend a factoring arrangement. 

£125,000 debt
The printer had a debtor book with a value around £125,000. Zest4Funding negotiated a deal with a factoring company that paid the printer 85% of each invoice's value immediately minus a service fee. As new invoices were then raised, the factor made available up to 85% of the gross invoice value within 24 hours of issue. 

The remaining 15% (less a discount fee) was paid by the factors to the printer once the invoice was paid. 

The cherry on the cake was that we repaid our overdraft, and now our houses are no longer under charge to the bank!

Immediate cashflow injection
Being paid 85% of its £125,000 debt right away gave the company an immediate cashflow injection of £105,000. This was used to pay off the overdraft and the outstanding VAT; it left around £35,000 extra for working capital. 

Credit control was suddenly in the hands of a professional agency, and the printer saw an immediate difference in the time it took for invoices to get paid: its Days Sales Outstanding average shrank to less than 55 days. 

Cherry on the cake
The factor also undertook to credit-check all customers, and "the cherry on the cake," says a director, "was that we got to repay our overdraft and that means we revoked the personal guarantees. Our houses are no longer under charge to the bank!" 

The printer was also pleased to find that it had the option to insure its debt against non-payment. Because one of its best customers - a local retail chain with six outlets - accounted for more than 35% of the printer's business, the factor suggested for security that this customer's debt be insured against non-payment. "We don't expect that we'll need to call on that facility, but it doesn't cost us much to be sure," says the director. 

what is...


Factoring works effectively as a cashflow facility secured against a company's debtors' book, explains Simon Dempsey of Zest4Funding

  • Factoring is a type of invoice finance, which is a generic term covering both factoring and invoice discounting 
  • Factoring is the practice of outsourcing debt, in the form of invoices, to a factoring company. The factoring company pays (typically in the independent sector; expect less from a high-street bank) 85% of the invoice value immediately, minus a service fee 
  • Factoring facilites are secured against your invoices, and so - as you're not raising a loan or more debt - traditional methods of credit scoring are not imposed
  • It is very quick and effective to implement - in most cases reducing current liabilities and the exposure of traditional lending significantly  
  • Factoring is different from invoice discounting in that the factor then takes on the job of credit-controlling the invoices and collecting payment
  • The remaining 15% of the invoice value is paid to the printer once the actual invoice is paid, less the discount fee   
  • The administration or service fee is usually a fixed percentage of the gross invoice value  
  • The discount fee covers the cost of borrowing and is typically fixed at between 2% and 3% over base rate applied over the amount of time that the invoice is outstanding 
  • A variation on factoring is invoice discounting, where the credit control is left with the printer. The benefit of this is that the invoice finance arrangement remains entirely confidential, and the arrangement becomes, in effect, simply an advance against the debtors' book

who can benefit from...


The requirements for successful factoring are minimal, but the benefits are immediate and wide-reaching

  • The basic requirements for factoring are that a company must be business-to-business focused; and it must be offering credit terms to its customers
  • The key benefits are that a company gets 'paid' immediately the invoice is issued; the factoring company usually carries out credit checks on customers; and in many cases, there is the option to insure debt against non-payment 
  • Some companies who use factoring negotiate discounts with their suppliers because their liquidity of cashflow means they can pay supplier invoices immediately. These discounts can help to offset the cost of the factoring service 
  • Because factoring also means the company no longer needs to carry out credit control, there may be savings in terms of staff wages, or in freeing up a director to do more appropriate tasks 
Email Key Factors...
Karen Charlesworth

Welcome to the PrintSpeak Printers' Survival Guide - helping you to ride out the recession

The pages of the printing trade press have recently read like a Domesday roll-call of print's great and formerly glorious. Who could have predicted the failure of Borcombe SP, Kelvin Print Group, Quebecor, Capital, Printhaus, Butler and Tanner, Celloglas and more? With margins on print lower than they've ever been, the current global economic crisis is magnifying the cracks in every print business model.

But for every bad news story, there are plenty of success stories. Here at PrintSpeak, we decided to pull together a weekly newsletter looking at printers who recently hit a sticky patch - and what pulled them through. We hope it will provide our readers with food for thought. A struggling business is not necessarily a failing one - and knowing who to call is half the battle. In the coming weeks we'll be looking at subjects including factoring, debt collection, credit management, VIAMBOs, cost rate reviewing, credit insurance, financial restructuring and more - building a library of business know-how and giving you the contacts and knowledge to ride out the recession.

Karen Charlesworth
Publisher, PrintSpeak

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