Or perhaps that should be 'an awkward deal & an impossible customer'
It could have been our dream deal but for the opening comments of the introducer.- an owner-managed engineering firm is East London, established 15 years, profitable and with a good order book from corporate customers.
The words of the business consultant which nearly killed it were 'The deals has already been a few places & the customer isn't the easiest'.
On the phone the customer was less circumspect 'I'm an awkward old bugger' he informed me.
As a rule we hope to be second in line - immediately behind the bank, or potentially third because not all brokers are great - but once a deal has done the rounds it is difficult to see where we can add value.
Just this once - there were so many sweet spots in the deal I couldn't resist a trip to the East End to see them.
The Business:
Despite his stated propensity to be awkward the founder & MD was forthcoming and open - if strong of opinion.
He had set up the business 15 years ago and it had 'chugged along nicely' - giving him a reasonable living.
Then, in 2009 things had 'fallen off a cliff'' (I'll spare the expletives). His son had been called in as sales and marketing manager and business had started to recover gradually, until 18 months ago when it 'went completely mad'.
At the time of meeting they were flat out, with a full and growing order book, good customers and solid prospects.
The problem:
Unfortunately, like many small businesses with limited resource admin had taken second place to 'doing the job'. I already knew that accounts and returns were overdue but more problematic, credit control consisted of little more 'gut feeling' and sporadic and random follow up letters. Basically money was going out on stock and overheads far more quickly than it was coming in.
Additionally, due to a divorce the customer was not a home owner.
Solutions & hurdles:
This was too easy surely - factoring was the obvious answer to both credit control and cashflow problems?
Far too easy - the customer had very strong views on factoring - very strong indeed - and left me in no doubt that this wasn't an option even open for discussion 'everyone including my bank want to push me into factoring'. I'm quite comfortable addressing misconceptions but this clearly wasn't a live debate.
OK - my magic card - how about refinance of the aged but solid & working equipment in the workshop? Already tried - the valuers had come up with a figure which had antagonised the customer - who shared at length his views on the availability and integrity of valuers - he wasn't prepared to repeat the experience even if we could better the valuation.
He had also tried various online portals including crowd-funding sites but had failed each time due to lack of accounts and not being a home owner.
Felling the pain of my forerunners I left armed with out of date but fundamentally solid accounting and other information to chew the deal over.
This customer wasn't one for making life easy!
Addressing the problem:
A week later I revisited the client with an experienced credit control professional. It was agreed that he would work with the son to put in place a solid and reliable credit control procedure to follow moving forward.
He also introduced the client to an inexpensive bookkeeper who would run the accounts on a Xero cloud platform and bring the information up to date.
Finally as a 'tester' he left with some of the more challenging debts to chase on a 'by results' basis.
Good news moving forward, but what about immediate needs?
The customer's big objections to factoring were costs, rolling contracts and the fear for client relationships. Having explored further we were able to raise £18,000 on selective invoice finance against a few invoices to clients who were 'more understanding'. This addressed the most pressing needs and paid for things to be brought up to date.
Moving forwards:
Addressing the underlying problems will help a lot, though there is the need for funding to take things forward.
A surprise result was that the customer is actually quite fond of selective invoice finance and has returned to it several times.
However being on Xero we are able to offer him a full undisclosed invoice discounting facility - which is usually only available to far larger companies. We can also roll purchase finance in, which provides a true end-to-end solution.
With the accounts being brought up to date we are working of a £25K crowd loan over 3 year. This is through a smaller platform which does not exclude on the basis of home ownership.
Obviously having good, up-to date information helps significantly - there are now several options to choose from!
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