Trade Finance Case Study, A Lesson To Save Your Business
This case study is the first in a series.
In this video you will learn;
- What makes this deal so good.
- Why we took this client on.
- What we were looking for in this deal.
- What challenge had to be overcome to make this deal work.
By the end of this series we want you to have an insight into what we have learned about importing.
You will be armed with information we have obtained from the field.
First cab off the rank, a lighting importer with a AUD500K Facility.
Watch the video below to find out what makes a great deal!
And/or read the transcript.
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 here with Daniel, and today we’re going to be talking about an existing purchasing order finance client of ours. They are a lighting importer with a 500K facility. So Daniel, why are we going to discuss this case study today?
Daniel: Well, there are two things we want people to take away from this type of presentation, and that is how we’re financing and most importantly why we’re doing it the way we’re doing it.
Julia: Okay. Great. Well, why don’t we start with why you decided to finance this client. I know that you’re excited about this particular client.
Daniel: I am excited.
Julia: Why don’t you tell everyone why.
Daniel: Okay. There are four main reasons. The first thing is this client came to us. He has an excellent customer base. He has blue chip customers. Some of them are listed, and I think some of them are even public, semi-government. So that’s the first reason. The second reason that we took him on is that we can see he’s going to make a lot of money out of the transaction. So in that he had an excellent gross profit.
Julia: What’s a normal gross profit that you look for in any client?
Daniel: Most of the time we look for a minimum of 30% GP.
Julia: Well then, that’s pretty good.
Daniel: Yeah, it’s 40%, and sometimes he actually even has more than 40%. The best way to illustrate it is if he gets a purchase order from his customer for $100,000, he’s delivering that product to his customer for a cost of $60,000. That’s giving him that great margin. The third reason why is he has a solid product. The manufacturer overseas is blue chip. There is no issue with the product landing and it not being what was ordered. More importantly, the product is not getting returned because it’s faulty. And most importantly, fourthly, he has excellent paperwork. He’s not bringing stock into in this country that’s not pre-sold, and when it is pre-sold, he has paperwork evidencing the purchase orders.
Julia: Yeah. We know that’s one of the most important things.
Daniel: It is.
Julia: And so with every deal there’s always some sort of challenge. What would you say was the biggest challenge of this deal?
Daniel: Yeah, there are always different challenges. With this client, he’s so good at what he does, he was pre-selling product and getting these blue chip debtors to pay large deposits for the product, which is almost unheard of.
Julia: Yeah. That sounds like it would be a good thing.
Daniel: Well, it is a good thing. But here’s where it’s a bit of a bad thing. He was getting a big deposit, and before he was buying the product, he was spending some of that deposit. You can see where it goes badly, because what he should be doing is using that deposit to pay for product or to land that product. And because we lend against the face value of the purchase order, it really stuffs up our loan to value ratio, or financing ratios. So I guess, at the end of the day, we still were getting the deals across the line for him, but the moral of the story is, if you’re getting deposits, you need to use that deposit as collateral for the purchase order.
Julia: So what’s the lesson people can take away from this presentation?
Daniel: Well, get your deposits from your customers. That’s great if you can. But you need to give those deposits to either us or your manufacturer to bolster the trade finance.
Julia: Excellent. Great. Well thanks, Daniel. That was very informative.
Daniel: You’re welcome.
Julia: Guys, your next step is to call the office on the 1300 number and book an appointment with a product specialist, and we can discuss your deal. Thanks for watching.
Daniel: Thanks very much.