[Pristine Clean]

I was wondering how companies managed cash flow. Yes I undertstand cash flow.

However when companies start a large job where there are several staff to be taken on from a transfer TUPE.

How do you guys manage?

Lets say for example you get a large contract. 5 people have transfered over.

At the end of the month the comapany needs to find £6500 in wages alone. There would be other costs but lets keep it simple.

So your company has grown now but where does the money com from to pay them if you did not have it in the first place.

So is it a loan from the bank?
Do you invoice up front?
Other?


Dave

[Phild]

You need to avoid using an overdraft as it is repayable 'on demand'. Many companies go down the Invoice Finance (IF) route. This is either a factoring service where your send both the client and the factor an invoice and they will immediately pay you an agreed percentage in the 70-85% range. They then chase the debt. If they don't get the money in within 90 days they claw the advance back from you.

When your larger they will allow you to do undisclosed factoring which works as above but you chase your own debts.

They make their money by charging you a percentage of your turnover as a service charge plus interest on the money you draw down.

Research "factoring" on Google. You need to ensure you build the costs into your quotations because if you get copies of any larger contract cleaning company's accounts you will quickly realise they work on wafer thin margins!

One other bit of advice is to try and keep your banking and factoring services with two different suppliers if possible. It can be difficult to do as they want to extend as much power over you as possible as litterally they are financing your business with their money.

NB I would also advise that you only use factoring whilst in an expansionist mode. Also they will want you to have a certain level of turnover and a 'good' spread of clients.

[Pristine Clean]

Hi Phil,

Thanks for that. Yes I knew about the factoring process. I was trying to avoid that if at all possible.

Cheers


Dave

[Nick Head]

Dave

Good advice from Phil - normally it is either bank borrowing (eg overdraft) or factoring. Factoring can work for some companies and be a nightmare for others, the same goes for overdrafts I guess. It is very difficult to finance growth and the financing route needs a lot of thought. Personally I would recommend you get as much advice as possible, including that of your accountant.

Nick

[Pristine Clean]

Hi Nick,

Funny you should say that. We have booked a meeting up with our accountant & bank begining of next week to discuss the way forwad.

Thanks for all of the advice guys.

Cheers

Dave

[Phild]

Dave, another thought. We can get funding from the government via One North East. This is based on job creation. You probably have a similar development corporation in Kent. Longshot but probably worth a bit legwork. Phil D

[Pristine Clean]

Thanks Phil,

I will look into this later today.

Cheers guy for being so helpful.

Dave

[cml]

Hi

Assuming you are only looking for a short term fix then a short overdraft might be the quickest way forward.  Overdrafts tend to become expensive when kept for too long.  On production of a viable BPlan showing a new contract and staggered payments you might want to take on a short, quick term fix. 

Factoring is good as it offers liquidity.  By this route you would have to consider if your contract allows you to give  anything up to 15% of your potential profits away if you don't have the resources to implement your own debt monitoring system.