Early in the pandemic, sales pipelines slowed in the face of uncertainty. At Breadalbane Finance we adapted fast and took new approaches to refinance dozens of businesses to secure their survival and future success. When the ink was drying on sales contracts once again, we shared our clients’ relief and optimism.

But any celebrations were short-lived.

Brexit, the war in Ukraine, the effect of the Suez Canal blockage, and continued lockdowns in China are only some of the issues that have interacted to disrupt supply chains and drive price rises across fuel and raw materials.

What does this mean for construction and manufacturing?

These sectors are a complex engine of connected businesses. If cash is king, the unusual collision of so many external events means cashflow is the oil we need right now to prevent these industries seizing up.  

We’ve worked with accountants and other intermediaries to refinance several construction and manufacturing businesses. Generally, these organisations are long-established and profitable but are experiencing three types of threat to their cashflow.

Challenge 1. Dramatic mid-contract price rises in raw material

Most businesses achieve steady acceleration by delivering existing contracts while converting a pipeline of new business.

But when the price of raw materials suddenly increases mid-contract, and payment cannot be received until the contract is complete, even the most carefully managed businesses can hit a cashflow problem.

If this is not addressed, the lack of working capital can prevent businesses getting over the starting line on new contracts – snatching defeat from the jaws of their hard-earned sales victory.

Challenge 2. Unforeseen complexities of trading with overseas suppliers and customers

Even businesses that proactively planned for Brexit have been knocked off course by other international trade issues that they could not predict.

Some businesses have experienced the frustration of physical blocks. For example, goods stuck on haulage ships unable to be unloaded, so they cannot receive payment until delivery is fulfilled. Or, paying up-front then having indefinite waits for machinery that is critical to them completing a contract. Both scenarios can be crippling for cashflow.

Added to this, the exponential cost in overseas shipping is also causing similar problems to the mid-contract prices rises in raw materials.

Challenge 3. Sudden changes in finance and payment terms and aged creditor

Many businesses have built up aged creditors during the pandemic, and as Covid continues to prevent businesses getting a proper grip on their operations, banks that are maxed out with bounce back loans are pulling back on many other areas of financing. Profitable businesses with long-term banking relationships are not hearing what they’d hoped for when approaching their relationship managers for refinancing.

In this context, it’s not surprising that many suppliers have had no option but to reduce their standard payment terms by a third, from 90 to 60 days, removing any breathing space for cash-strapped businesses.

Is there any good news?

In spite of this, proactive businesses can remain competitive by leveraging the positives of the current situation. With supply chain issues impacting new assets, the value of used equipment is not depreciating – and in many cases it is increasing. For example, markets for construction machinery and yellow plant are very buoyant right now.

This gives business owners the opportunity to release equity from existing assets that have grown in value, which can smooth their operations through the current turbulence.

How has Breadalbane Finance overcome challenges for businesses?

Although the threats to cashflow are similar, the impact on individual businesses is unique. The following examples show how we have taken a holistic view to identify the best funding options for the situation, whether that be asset refinance, restructuring of existing hire purchase agreements or bridging loans.

A civil engineering firm hit by rising costs of fuel and raw materials halfway through a 12 month contract

Our aim was to boost cashflow so the firm could accommodate the increased costs, complete the contract and secure payment. Their yellow plant was on hire purchase agreements and by refinancing we were able to help them release equity to inject cash into the business, then reduce the level of advance to lower the level of cash leaving the business in monthly repayments.

Housing developer unable to sell any properties until the whole development was complete

With suppliers tightening payment terms at the same time as prices rising significantly, our client was stuck with completed properties that could not be sold to service the payments until all other properties within the development were complete. This put some pressure on the cash flow of the business so Breadalbane were able to step in and release the equity held up plant and machinery that was sitting on the balance sheet.

Food manufacturer facing delayed delivery of critical equipment they had purchased with 90% payment up front

Our client had purchased vital equipment from Italy, immediately before the country became the epicentre of the pandemic in Europe. This led to extended delay in delivery, amplified by staff being unable to travel into the UK to support installation. The loss of projected sales impacted cashflow significantly. By refinancing the equipment when it arrived, we helped the business quickly ramp up their manufacturing.

Textile manufacturer with goods stuck on water awaiting entry to Egypt, then hit by four-fold increase in shipping costs to US

The 100-year old business was impacted by economic factors outside their control – with goods stuck in transit or spiralling costs to deliver them to the end user. A trusted adviser introduced them to Breadalbane to address the resulting cashflow issue. The business had assets that sat outside mainstream lenders’ credit appetite, so we appointed a valuer who provided evidence that there was a significant second-hand market for these older assets, so another lender had the confidence to approve refinancing.

Conservatory manufacturer buying commercial premises, suddenly at the mercy of their bank changing the terms of the offer

When the bank lowered the LTV at short notice from 80% to 60%, the manufacturer thought there would be no option other than to make good the shortfall with cash. Instead we were able to refinance a single piece of manufacturing equipment to make up the shortfall. 

How do we streamline the refinancing process?

Many businesses wanting to improve their cashflow need a rapid resolution, so we focus on giving lenders the accurate information they need to make a quick decision.

• Correct financials in the correct format – we support our clients to collate the comprehensive information in the format required by the lender as this can deliver a decision and released funds in less than a fortnight
• Asset valuation – we work with a trusted valuation services company to ensure that the lender is provided with a robust valuation up front to give credibility to the application
• Loan servicing – by carrying out thorough analysis, we can give lenders confidence that there is a pipeline of work to service the loan

What else do businesses need to consider?

From the very beginning, we are transparent that there is an increased cost from refinancing in the longer-term. We provide clear figures, so it is easy to weigh up the benefits of an immediate cash release into the business and lower monthly repayments, against the cost of a longer finance arrangement.

This will not be right for everyone. But if a business is faced with being unable to complete or initiate contracts, there will be an opportunity cost to consider as well if this is not addressed.

Why is there now even greater potential for positive impact?

It is immensely satisfying to help inject cashflow into a business at any time. However, at the moment, it is very much a case of the whole being greater than the sum of the parts.

With the scale of the issues impacting entire industries, every business we support to achieve better cashflow indirectly helps others in their supply chain. This is one way we can make a difference and have a positive impact by equipping businesses with the resilience they need during this unusually bumpy journey.

If your business or your clients business is facing any of the challenges discussed in this article, contact us today to discuss the available options. There’s a funding request for every requirement and Breadalbane can help.