So, you’ve just won a major contract. Great job! However, sometimes winning a contract from a large business customer can often turn out to be a poisoned chalice for SME’s. Why? The next challenge is how to manage your cash flow as your customer’s payment terms always seem to be in their favour.
However, large businesses want good supply-partners and it’s important for them to keep you. As a result they’re often happy to accommodate in other areas. One particular area is that of cash flow – specifically helping their supply-partners work with financiers such as invoice finance providers. “It’s been a growing trend in recent years” says Melissa Lovf, Fifo Capital’s Head of Credit Risk.
“Ten years ago, large businesses rarely entertained the idea of assisting with an invoice re-assignment by acknowledging a debtor’s notification. Today, it’s becoming commonplace,” Lovf explained. Lovf also gave recent examples including some top twenty ASX listed companies such as BHP, Rio Tinto, and ANZ, as well as other multinationals including BMD who have been happy to accommodate their supply-partners. Lovf attributes this growing willingness to help SME’s set up such facilities as a combination of wanting to stay in their supplier’s “good books”, and, the fact that many large businesses are using other forms of invoice finance facilities themselves. They feel very comfortable with their supplier’s invoice assignment arrangement.
“Ten years ago, large businesses rarely entertained the idea of assisting with an invoice re-assignment …Today it’s become commonplace.” – Melissa Lovf, Head of Credit Risk, Fifo Capital Australia
Fifo Capital has also observed the awareness of short-term invoice finance within their own SME customer base, often referred to as ‘spot factoring’, as being extremely low. “But, it’s gradually changing as business become more financially savvy, combined with the fact banks have tightened credit since the GFC, so, SME’s are looking more and more for other funding options.” says Lovf.
The Toyota Motor Corporation Australia is one corporate who recognise the importance of keeping their suppliers on side. For many years their business culture has been to treat their suppliers as ‘family’.
Like many large corporations, Toyota knows they cannot succeed without a strong and reliable supply chain. As a result, they constantly engage and work with their supply-partners to ensure they can keep up with meeting their orders. They’re often the first to suggest different solutions not to mention allow these supply-partners to use invoice finance facilities. Ultimately, they’re the ones that benefit, so, it’s a ‘win, win’ situation.
The next time you’re wondering how to keep your working capital in a healthy state once the big contract has been won, remember your client needs you – and, just because they can’t stretch trading terms, they’re more than likely to help facilitate a working capital solution via other means.
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