Trade Finance Case Study, Why Combining With Debtor Finance Is Ideal
What makes a financier keen to fund a deal?
Why is it important to have both Debtor and Trade facilities in place?
To answer these questions and more, let’s move onto our next case study, a capital equipment client with a 400k facility.
In this video you will learn;
- Why this was a good deal
- Why a combined facility works best
- Daniel’s least favourite type of stock to fund
- Issues we tackled throughout the transaction and how we resolved them
By the end of this series you will have an insight into what we have learned about importing.
You will be armed with information we have obtained from the field.
Watch the video and/or read the transcript below
For an appointment with a Product Specialist call the office on 1300 652 158
Julia: Hi, everyone. Julia from AR Cash Flow here. I’m back again with Daniel, and we’re going to be going through another case study of ours. This is a trade finance deal we did for a capital equipment client which had a $400K facility. So, Daniel, first of all, why don’t you tell everyone why we did this deal.
Daniel: Well, this is a very exciting deal. It’s one of the first deals we did when we were doing capital, which is heavy equipment that’s got a high residual value, and that was one of the main reasons that we were attracted to these types of deals.
Julia: Yeah.
Daniel: Because the stock is actually worth something . . .
Julia: Great.
Daniel: . . . to many people.
Julia: Yeah.
Daniel: For the most part . . .
Julia: Actually, that’s a really good thing to touch on. I mean, you obviously get a lot of deals with stock that people have that you would never be able to resell. So . . .
Daniel: Julia Gillard T-shirts?
Julia: Yeah, exactly. So, you know, why don’t you just elaborate on that point a bit more. So what was the . . . we can’t really say what the stock was, though, can we?
Daniel: Yeah, we can say the stock. It’s forklifts.
Julia: Yeah.
Daniel: But why that’s important is because even though it’s pre-sold . . . actually, that’s a really good point you bring up.
Julia: Yeah.
Daniel: Even though it’s pre-sold, those orders are always, no matter what they say, they’re always cancellable.
Julia: Yeah.
Daniel: And so, if the stock, if those orders are cancelled, we want to know that we can resell that equipment to somebody else for a similar price.
Julia: Yeah.
Daniel: So that’s why these deals are exciting.
Julia: Absolutely. Okay, cool. Let’s move on to the next point.
Daniel: Yeah. So, pre-sold, we covered that. They’re solid debtors. So they are selling these forklifts to smaller debtors, and where they are selling them to smaller debtors, those debtors have their equipment finance pre-approved for the purchase, and we get a copy of that, and the financier pays us out. Where there’s larger debtors that they’re supplying, such as big companies, publicly listed companies, again, there’s trading on credit terms for them. So they don’t need EF, or equipment financing, pre-approved to pay us out.
Julia: Okay.
Daniel: The last point, the most exciting point is this client makes a lot of money out of these deals. Their margin is over 30 percent.
Julia: Yeah.
Daniel: Sometimes vastly over 30 percent gross margin. So that’s attractive. When we know our clients are making a lot of money out of the deals, then we know it’s a safe deal for us to do.
Julia: Yeah.
Daniel: And it doesn’t change our pricing, but it makes it a lot more exciting.
Julia: Yeah. And obviously, you can help them grow even bigger.
Daniel: Yeah, exactly.
Julia: Okay, cool. So let’s move on to one of the challenges faced throughout this deal. Take it away.
Daniel: Yeah. This deal was originally pitched to us as an inventory-only deal, and that was all that we originally put in place for the client. But we soon realised, after we’d done the first transaction, that this client actually needed a complete supply chain solution. And what that means to us is, they needed inventory plus debtor finance. So, these days, what we take away from this is, if there’s an inventory facility that we’re going to put in place, we always put debtor finance in place as well, because, as sure as night turns to day, you can be sure that stock is going to be delivered and it’s not going to be paid COD. It’s going to be paid 7 days, 21 days, 30 days. There’s always going to be a little time lag after delivery. And that’s why you always need debtor finance in place as well.
Julia: Excellent. So what can the people watching take away from this case study? What have you learned?
Daniel: What have we learned? Well, we . . .
Julia: What you just said.
Daniel: What I just said. Yeah, exactly.
Julia: Okay.
Daniel: You put the debtor finance in place with the inventory all the time, and that way, even if you don’t use the debtor finance, it’s there if you need it.
Julia: Excellent. Thanks, Daniel. Guys, call the office on the 1300 number to secure your appointment with a product specialist. Thanks for watching.
Daniel: Thank you.
