Case Studies
Case Study 1 – Mergers
Company A is in the Manufacturing sector. Company B is in the Distribution sector.
Company A encounters a scenario where company B is willing to merge operations and provide Company A with a distribution outlet and new distribution channels that will open up new markets and in all likelihood boost Gross Profits by an ultimate 47%. Capital required for the merger is $450,000. Company A, however, does NOT have that sort of cash available and is unable to raise sufficient finance through conventional Business Banking channels. Company A’s Finance Broker happens to hear about their dilemma and upon closer inspection, it is revealed that Company A has $675,000 in Debtors. A single debtor makes up 24% of the Aged Debtors Ledger at $159,000. Company A’s Finance Broker approaches Cash Resources Australia with a Debtor Finance application.
Outcome:
CRA approve a $450,000, 90 day facility within 14 days from time of application. Company A draws down on this facility and completes the merger providing them with a huge growth opportunity that sees them realise 30% growth in the first year after merger and well on track to achieve the 47% predicted growth. Company A utilizes a further $300,000 of the facility in the second quarter and a further $190,000 in the third quarter.
Case Study 2 – Slow Paying Debtors
Company B is a Printing Company with a significant portion (58%) of its debtors in a particular industry. An unexpected event sees business activity in that industry experience a temporary downturn. The business experiences the unfortunate situation of having to temporarily grant those clients an additional 45-60 days on their payment terms.
Whilst their clients appreciate this temporary arrangement, it places the business under extensive cash flow pressure to meet existing overheads. The company approaches Cash Resources Australia via their finance broker. Upon satisfaction that the slowdown in the particular industry is likely to be very temporary in nature, CRA approves an $180,000 facility against 80% of the company’s Aged Debtors Ledger. The company utilizes the facility for 90 days, is able to meet all it’s overheads and continue trading with limited disruption.
A potentially disastrous situation for the company has been averted through CRA’s Debtor Finance.
Case Study 3 – Property Settlement
A business owner runs a business in the Wholesale sector. He has come across industrial warehousing premises that would be ideal for his business. He negotiates the contract with the vendor for $1,995,000, comfortably having 35% deposit + fees available and the balance being approved through a major bank via his finance broker.
Just prior to settlement, he discovers the vendor, who is coming under increasing pressure to sell, also owns a vacant industrial site in an adjacent precinct. The owner, seeing the opportunity, decides to place a bid on the vacant lot for $380,000, approximately 20% below market price and a significant saving. The vendor agrees to the price, only for the bank to approve just $120,000 additional funding.
The finance broker, being a long term supporter of CRA, approaches us. Upon review, Cash Resources Australia approves a facility of up to $295,000 in Debtor Finance enabling him to finalise the transaction and purchase the additional property at the significant saving indicated.
Case Study 4 – Purchasing Materials/Resources for Upcoming projects/contracts
An earthmoving company has just been awarded a huge earthmoving contract by Company C. However, to complete the project in the required timeline, the company will need to purchase additional machinery and additional resources, amounting to an outlay of close on $400,000.
The company’s Finance Broker advises them that their equipment finance lender will not advance them additional funds for equipment finance. Their Finance Broker does however notice that they have approximately $700,000 in debtors. They suggest that they consider a Debtor Finance facility with Cash Resources Australia.
Upon review of their financial information, CRA authorise a $500,000 facility enabling the company to secure the machinery and additional resources required for the contract.
Case Study 5 – Purchasing Materials/Resources for Upcoming projects/contracts
An air conditioning supply company specialising in commercial projects. They have an approved $350,000 debtor finance facility with Cash Resources Australia. They do not however, require the full debtor finance facility available to them and began to consider ways in which they could put the balance of their facility to good use.
Realising that they had two upcoming large projects requiring a specific brand of air conditioner, both projects some 2 months apart, they utilised the additional cash flow available through their debtor finance facility to bulk order sufficient units for both projects. In so doing, they negotiated a significant discount on the units which effectively saved them in 9% on that purchase.
This saving not only offset the full cost of the CRA facility for that invoice batch but ultimately provided them with a substantial saving across the board.
Case Study 6 – Refinancing the business
A long haul transport company with significant assets, including a substantial fleet of refrigerated and conventional trailers, warehouses in 2 States and their own commercial premises in Brisbane. They have their bank facilities; including loans over the commercial property, equipment leases and overdraft facilities with two separate banking institutions.
One of their banks has recently raised interest rates, by a significant margin, which will mean substantial additional interest payments per annum and unpalatable cost of borrowings. The company explore their options about refinancing their facilities to a single bank or into another bank. Upon discussion with their finance broker they realise that the $87,000 tax bill they have recently run up with the ATO, although under payment arrangement, will prevent them from being able to refinance.
To compound their woes, their commercial premises near the Brisbane River have recently lost $120,000 upon re-valuation pushing their LVR’s for refinance up to 83%. They believe their chances of refinance are extremely limited. Their finance broker identifies that they have $900K in debtors.
The broker approaches CRA with an application for debtor finance, the facility is approved at $720,000. The company immediately pays out their tax debt and contributes a further $160,000 from the debtor finance towards the refinance through a new bank. The debtor finance facility has enabled them to refinance and they have saved significant dollars in interest payments as a result.
Case Study 7 – Start Up Capital
An offset print specialist that has been trading for just 3 weeks. Start-up capital is very limited, however, the company has just secured two large corporate accounts.
Realising the need to purchase additional equipment and put on additional staff to accommodate the demands of these two large accounts, the Directors are at a loss as to how to fund the business. Their finance broker advises them that by completing initial work that does not require new resources, they can then invoice that work and perhaps raise working capital against the invoices.
An application is submitted to Cash Resources Australia and despite just 3 debtors on the ledger and significant concentration, a facility to $45,000 is approved. This provides them with sufficient start up and working capital for the next 3 months.
Case Study 8 – Loss of Business through a Bad Debt
A Recruitment Company specialises in mining related recruitment. Although having traded for 2 ½ years, they have a single client that forms 48% of their business. That client experiences financial difficulties and ends up closing its doors meaning the recruitment company experiences a significant loss in income.
With upcoming wages and other commitments, the Directors are at a loss as to how they will meet those commitments given this sudden loss of income and cash flow crunch. Their accountant suggests they consider a temporary Invoice Finance facility.
On approaching CRA they are approved for an $180,000 facility with no lock in contract or terms. They draw down on the facility immediately after settlement. This enables them to meet their commitments to Creditors, the ATO and their bank. After 5 months they find that with new business they have secured and their existing client base, they no longer need an Invoice Finance facility. They kindly advise CRA that they no longer need the facility. Upon advice that there are no exit fees or any other fees associated with keeping the facility available should they need it in future, the company decide to keep the facility in place.
Case Study 9 – Payment of Outstanding Tax Debt
An Earthmoving company suffered extensive losses during the 2011 floods.
Having built up a substantial tax debt of $285,000, the ATO have remained sympathetic and supportive. Sales for the most recent quarter have exceeded expectations yet the outstanding GST component has placed their tax debt beyond a limit acceptable to the ATO and the company are required to repay a lump sum of $70,000 with immediate effect.
Not having these resources available, the company approach Cash Resources Australia for a Debtor Finance facility. Upon application, a $90,000 facility is approved and the ATO debt is paid out immediately, enabling the company to continue trading without penalty.
CASH RESOURCES AUSTRALIA
The benefits of using Cash Resources Australia are that we have a flat management structure, which allows us to make quick financial decisions. We have a dedicated team that provide personalised services to our client base. We are more interested in where the business is going, than where it has been in the past.
Alan Kaye, Managing Director.