Printers
Small Firm Scored Own Goal In Euro 2004!
As Euro 2004 reached fever pitch and football fans adopted high hopes for our national team, there was one firm in Morley, South Leeds, also hoping that England will do well. Textile printing firm T-Shirt Printers Ltd was poised for premiership success, but under different circumstances, it could have been quite a different story.
T-Shirt Printers Ltd produces personalised merchandise from most textile products including bags, caps and, of course, t-shirts and manufactured a range of goods for the Euro 2004 sporting events. Employing 22 permanent staff, the firm also hired 15 temporary and agency staff to help cope with demand for these seasonal products. An opportunity that only comes around once every four years, the firm was hoping to score big business and reap the rewards.
With large customers such as newspaper groups and multinational drinks companies, T-Shirt Printers Ltd needs to be able to deliver large orders in a short amount of time for the sporting events. However, as with many small firms in this situation, cash flow was the major obstacle to fulfilling these orders, but when the firm looked at additional funding from banks, T-Shirt Printers Ltd drew a blank.
Tony Moore, owner and senior director, knew that he would have to tackle this cash flow problem in order to grow the business successfully, but was becoming increasingly frustrated by the problem. He explains:
“When I approached the bank about our situation they were very inflexible. They offered me an overdraft, which would have helped in the short term, but this was an unfeasible option with a view to the future of the business as our requirements can change week by week. We are twice as busy in the summer months as over the winter, but the overdraft would not have taken this into account.
“At times we can have outlays of between £50,000 to £60,000 for any one order, and with a two-week lead time for our products we need to get hold of the money quickly. An overdraft simply wasn’t a suitable option, but the banks couldn’t offer us a more appropriate solution.”
It is a common problem for many small businesses keen to grow but stumbling over the issue of cash flow. However, there is a solution in the form of factoring. Companies such as Bibby Financial Services will advance up to 85% of the confirmed order value, to pay suppliers upfront and once the business has delivered the goods, will invoice the customer. The money is then collected from the customer by the factor and the business paid the balance between the order value and the amount paid to the supplier.
The advantage of a factoring arrangement is that firms can benefit from more flexibility, enhanced cash flow and less dependency on customers to pay on time. Factoring ensures that businesses can pay suppliers on time, to help fulfill any orders. It is also ideal for those firms that have fluctuations in demand throughout the year – perfect for a firm such as T-Shirt Printers Ltd whose business depends upon seasonal events such as Euro 2004.
Traditional lending institutions such as the big banks, in many cases, shy away from funding large confirmed orders. This is due to the fact that they perceive smaller businesses to have a lack of sufficient security and perhaps an over-dependency on their larger customers. This often leaves owners and managers frustrated as they watch crucial deals slip through their fingers due to an inherent lack of cash flow to fulfill these vital orders. A factoring facility can make such deals possible, as well as profitable.
Tony adds: “We factor around £1/2 million a year, so any other form of finance just wouldn’t be flexible enough for us. Factoring allows us to work within the credit terms available from our suppliers meaning we never have to turn customers away due to cash flow problems. With factoring we can use the income from one transaction to pay for the costs associated with that transaction which would be impossible with traditional funding from a bank.
“It was an obvious choice for us to use Bibby Financial Services as we have known of them for years and trust their reputation. We have been able to grow our business considerably since we started nearly three years ago, despite the fact that we operate in a relatively specialist sector. We hope to see our annual turnover reach £6 million over the next few years – a goal we could not have hoped to achieve if we did not have cash flow assistance in the form of factoring.”
