3actoring (Invoice Discounting)
Industry: Transport
Business Stage: Established
Funding: $3,000,000
Background
Client Overview:
A transport company with an annual turnover of $20M entered voluntary administration due to cash flow issues stemming from the COVID-19 pandemic. The company fell into the ATO debt trap, a common challenge for many small businesses at the time. While creditors approved a Deed of Company Arrangement (DoCA), there were concerns about cash flow moving forward, especially with suppliers imposing tighter payment terms, including cash on delivery (COD).
Challenges:
- The company needed to acquire its fleet of trucks from the administrator to meet the DoCA’s requirements in one hit rather than the proposed 24-month repayment plan. An extended plan, although approved by creditors, would have required them to continue trading under the “Under Deed of Company Arrangement” label, which carries a significant stigma.
- Tight credit terms from suppliers, particularly for fuel, placed additional strain on cash flow.
- Driver shortages, a persistent challenge in the transport industry, made it crucial to retain subcontractors by ensuring prompt payments.
- Without sufficient working capital, the company’s ability to grow and stabilise would be severely hindered.
Hermes Solution
Hermes Capital provided a bespoke $3M funding solution to help the transport company meet its immediate financial needs and position itself for future growth:
1. Term Loan for Asset Acquisition:
Hermes financed the acquisition of the company’s trucks from the administrator into a newly created asset-holding entity. This allowed the client to satisfy the DoCA obligations in one lump sum payment, avoiding the reputational damage of operating under the “Under DoCA” label for two years.
2. Invoice Finance Facility:
To ease ongoing cash flow pressures, Hermes provided an invoice finance facility, which enabled the company to access liquidity tied up in outstanding invoices. This gave the company the flexibility to meet operational costs and pursue growth opportunities.
3. Trade Line for Fuel Purchases:
With suppliers imposing stricter payment terms, particularly on fuel, Hermes set up a trade finance line. This allowed the company to maintain its fuel supply without needing to rely on COD terms, improving cash flow and operational stability.
Outcome
Hermes Capital’s $3M solution led to significant positive outcomes for the client. They avoided the stigma of trading under the “Under DoCA” label, helping to preserve its reputation with customers and suppliers. With improved cash flow, the company could pay its subcontractors promptly, helping to retain drivers in a challenging labour market. They have thrived post-restructuring, achieving sustainable profitability and growth. The client no longer faces cash flow issues and is well-positioned to capitalise on future opportunities. This result was beneficial not only for the company but also for the deed creditors, who were paid in full upfront, eliminating the risk of a drawn-out payment process.
This case study demonstrates how Hermes Capital structured a $3M finance solution to help a transport company in voluntary administration meet its obligations, stabilise cash flow, and regain profitability, allowing them to thrive in a competitive market.