Are your suppliers about to throw your business on the bonfire?

Andy Grantham advises on funding solutions for the upcoming new year

With the year end fast approaching, so looms the spectra of having to file last year's accounts.

Many SMEs may not have considered potential problems if they are about to file a less than impressive set of figures, with many assuming everyone is in the same boat.

The problem is, once they are filed, they will be poured over by numerous credit reference agencies who will arbitrarily decide on what is an appropriate level of credit your business is good for. This in turn feeds back to your suppliers who will be making decisions on levels of supplies they will extend to your business on credit terms.

Lots of SMEs have had a tough past few years and their accounts may show losses and a weakened balance sheet, despite the now improving economic picture. A poor set of accounts can potentially have an immediate impact with your best and most important suppliers, who may inform you they cannot deliver any more products as you are now over your newly-reduced credit limit. This can cause a real cashflow hole which becomes incredibly difficult to manage.

All is not lost!

If you expect to lose some flexibility with your suppliers based on the above, there are steps you can take to help reduce the impact:

Speak to your key suppliers beforehand and keep them informed of how the business is doing. Make them feel they are key partner and share with them your sales successes and projections. A close relationship where they are regularly appraised, including supplying them with your management accounts if necessary, may give them the comfort to leave the limit in place.

If however, they are forced to cut your credit limit, this will cause a need for extra cashflow into your business if you are to meet new orders.

There are other options

Whilst seeking an increase in your overdraft may be more problematic in the current environment, you still have options:

  • Offer a settlement discount to your larger customers to pay earlier.
  • Seek other forms of finance such as Invoice Finance (which includes Invoice Factoring or Invoice Discounting).

The beauty of invoice finance, such as factoring and invoice discounting, is that the facility is linked to your sales and grows with your business. Hence the more sales you achieve, the more cash is available to pay for the increased goods you need to purchase.

Just imagine if all your customers paid you within 24 hours, you wouldn’t need large credit lines from your suppliers – and that’s what an invoice finance facility can do for your business.

Factoring companies are less concerned about historic financial accounts, more the underlying security of the debtor book and how your business is currently performing. Hence they can often provide much more flexibility and cash than traditional bank overdraft. This together with the lack of bank appetite for funding distressed business at present means invoice finance is an excellent way to close the cashflow gap.

So, whether your accounts are little sparklers or complete duds, why not see if invoice finance is a better way of funding your business.