Financing That Big Order

How do I finance that big order?

Rob Kelly of Scottish Pacific Business Finance UK explains how entrepreneurs and SMEs can improve their cash flow when faced with the challenge of a big order.

Landing a large order with a major retailer can be a dream come true for an entrepreneur. With access to a larger consumer base, businesses can not only increase sales but also brand awareness, which can drastically take the business to the next level.

However, with big orders, come big challenges and costs. Without prior planning, businesses often find themselves lacking the necessary finances to pay their suppliers – who often demand advance payments.

Even more, those that are able to meet these upfront costs are also faced with long payment terms demanded by commercial clients, which can result in companies often waiting up to two months to receive payment.

These demands can have a negative impact on cash flow and consequently, impact the day-to-day operations of SMEs and start-ups that typically have limited cash reserves to fall back on.

Having positive cash flow is therefore critical to sustaining and growing a business, and one of the best solutions to maintaining these levels while fulfilling an order is through invoice finance.

The great thing about supply-chain (trade and invoice) finance is that it is a self-liquidating facility, meaning that businesses don’t take on additional lending and debt, but rather receive an advance on money that is already owed via a confirmed purchase order or sales invoice.

This way, companies gain better control of cash flow and receive a boost to their working capital levels, enabling them to invest in new products, cover staff costs and utilities.

This also puts businesses in a better position to negotiate more attractive financing terms with lenders and negotiate discounts with suppliers, which allows businesses to increase their buying power both domestically and internationally.

All the above was evident when a prospect approached Scottish Pacific having just won that ‘dream order’.

The prospect was a supplier of far Eastern beauty products, which was working as a sole-trader in market stalls and pop-up-stores in town centres around the North East of England. One day, unbeknownst to the owner, a buyer for a well-known high-street brand visited the store and was so impressed that subsequently a six-figure order was placed.

With the option to self-fund out of the question, the prospect started to look at various options to bridge the gap. The initial reaction was to apply for bank and main-stream funding, but because there was no real trading history, historic accounts or financial information, ultimately this door was closed.

However, a supply-chain finance facility funded the supplier and the customer invoices, which in turn enabled the business to fulfil this initial order and focus on winning more sales, without the stress of having to worry about their cash flow.

As outlined above, small and medium enterprises need to be aware of some of the challenges that may arise in order to determine how they can fulfil the order, without jeopardising their cash flow.

Maintaining a positive cash flow is critical to sustaining and growing a business.

At Scottish Pacific, we offer a range of cash flow finance and working capital solutions for business owners across a number of industries. For more information:

Contributed by Rob Kelly
Kate Shaw
Article by Kate Shaw
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