Jared Associates is a recruitment company specialising in the civil engineering industry. In a fast-growing sector, the company realised it would never be able to achieve its growth potential on its existing bank overdraft facility.
“The steadily increasing number of temporary staff was beginning to have a huge impact on our cash flow. We found ourselves constantly trying to renegotiate our overdraft facility to cater for our needs as an expanding business,” says finance director, Jonathan Chambers. ”The hassle factor was significant.”
Chambers considered persevering with the firm’s overdraft, but when its accountant recommended invoice discounting three years ago, he decided this would be a smarter option. “The most important aspect of our business is paying out a temporary payroll on time, cash transfer hiccups and last minute adjustments to availability would be very damaging.”
He says invoice discounting has smoothed out these bumps, making the monthly cash cycle run more easily. “Cash transfers are made on time and funds withheld on debts have been minimal. It’s given us a more predictable cash flow, enabling payrolls and other outgoings to be met without having to rely on our client’s promise that the cheque is in the post, while allowing us to expand the temporary staff base significantly. The overdraft route had limitations and attracting external finance would almost certainly have meant giving up equity.”
Chambers says the decision transformed the company’s ability to grow. “We now have 15 staff in our Tunbridge Wells office and have opened offices in South Africa and Australia. This is all part of our business plan to capitalise on the international migration of staff in our industry,” says Chambers.
The company’s turnover has also increased year-on-year and is expected to reach £4.5m this year.
Invoice finance is also increasingly used as an effective means of outsourcing the accounts department to minimise overheads. When Martin Brighty and David Walker launched a company selling handmade silk ties in 1996, this was a major benefit of factoring.
“To start a business in the UK you ideally need a year’s worth of money behind you. We needed £150,000 and we only had £1,000. When you’re new in business, banks don’t want to lend that amount,” says Brighty.
After exploring factoring as an alternative means of raising the finance, Brighty and Walker met with an advisor from Alex Lawrie Factors, who told them that if they came back with the orders, Alex Lawrie would come up with the money. They set off to the US, a market they identified as having huge potential, with some samples and, after securing £50,000, returned to a cash advance of £37,500 – 75% of the total outstanding invoices. So Hunters Partnership Ltd was born.
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