“Companies within fresh produce are dealing with buyers that maintain long payment terms,” says Marco van Megen of Finance & Insurance Working Capital BV. Because of this, the working capital of entrepreneurs is under pressure in various ways, and that’s why it’s sensible to pay attention to this. In particular considering there are as many suppliers as there are letters in the words working capital financing.
A flexible interpretation of working capital is particularly interesting for companies that grow, that experience seasonal influences, that could gain purchasing benefits by speedy payments or prepaying suppliers or considerable debtors, and who have positions of stocks. There are basically two situations in which we can help entrepreneurs with this flexible working capital financing, also called factoring. The first is because of the entrepreneurs own interest. “It could be the entrepreneurs decision to switch to flexible working capital financing, we could then help make sense of the market and negotiate the conditions,” Marco explains.
The bank could also play a part and take initiative, by proposing, for instance, to turn the ‘old’ current account into a factoring contract. “It’s then good to find out if the bank’s offer is in conformity to the market, because that’s not always the case,” he continues. “It doesn’t often happen that it’s cheaper for a company to switch from a current account to a factoring with the same bank.”
Binding purchasing conditions
The role of the bank has changed in recent years, in part due to the Basel Accords. These accords, set up in the wake of the banking crisis of 2008, state, for example, the requirements for the banks’ continuing capital. Factoring companies, which are sometimes fully integrated in banks, offer alternative ways of financing. The stricter rules for the banks created more room for these parties. “On the one hand it’s a natural process, on the other it was the result of the Basel Accords that asset-based financing has become more popular in recent years.”
For fresh produce companies, a solution for financing needs is important. “The sector is characterised by large volumes and relatively small margins, that always results in a high working capital requirement,” Marco says. Besides, the sector’s sales areas aren’t known for their speedy payments. “That’s mostly export and retail, and the latter is not known for speedy payments.” Some large retailers offer Supply Chain solutions (reverse factoring). “The question then is always if it’s interesting. Additionally, supermarkets consider their own purchasing conditions binding. In that case, it could so happen it’s prohibited to pledge the claims.” In his opinion it’s a good thing The Hague is looking for a pledge prohibition in these legal relationships. “It’s ridiculous supermarkets sometimes have payment terms of 70 days or more, and that the supplier is also bound regarding working capital financing, because the conditions include a pledge prohibition.”
Providing insight into the market
Prepayments are also usual in the sector, which means a grower receives payment long before the products are supplied. “That’s another situation putting pressure on working capital financing, which is why it’s obvious there’s much demand for this type of financing.” There are many different types of financing, making it impossible to sum them up. “It very much depends on a company’s financing needs. We offer custom work, we compare the various financing options to the current financing,” Marco explains their process. They then look for a better way that is more flexible at better conditions, and larger in size and therefore more fitting. “That is the basis we judge,” he continues. “Besides, many new products were added to the market of financing for SMEs, so in addition to the traditional banking solution, we also have access to the complete picture and alternative financing methods.”
“From a working capital point of view, we look at the complete active side of the balance. That’s the starting point of our activities. Based on all this information, we create an image of the company’s financing position. We then give an advice for a financing solution that fits the wishes and needs of the company. We do this for entrepreneurs who don’t always have an efficient or more flexible financing at the top of their agenda. It’s a time-consuming process, and that’s why a solution via your regular bank isn’t always tested for market-conformity. Our involvement isn’t over once the financing agreement is signed. We continue to guide our customers for the duration of the agreement. Because of this, we continually monitor the agreement.”
For more information:
Finance & Insurance Working Capital B.V.
Marco van Megen
Burgemeester Stramanweg 101
1101 AA Amsterdam, the Netherlands
T: +31 (0)20 7540 712
M: [email protected]
W: www.finance-insurance.nl
L: linkedin.com/in/marco-van-megen-39a104a
