Funding levers

Being able to quickly pull funding and cash “levers” is important for all corporations and especially those with limited working capital, needing growth finance and/or experiencing under performance issues.

Here are 10 levers quickly able to be actioned to help provide a company with a finance “bridge”. 

Financiers

1. New bank facilities: Extending or changing bank facilities with existing financiers can be relatively straightforward because of the financiers knowledge of the business and exposure. However, the “price” of new facilities is often having to provide additional security, agreeing to increased rates or allowing more onerous covenants.

2. Principal repayment deferrals (interest only facilities): Current banking practices make this more achievable as financiers are increasingly supportive and keen to retain their customers.

3. Alternate debt markets: the risk appetite of mainstream debt providers is relatively low and in higher risk situations there is a wide variety of different debt sources including mezzanine debt providers, hedge funds and distressed debt financiers. These are expensive solutions and hopefully only required for a relatively short period.

Investors

4. Capital raising: This is most relevant for large private and listed corporations. There are pro and cons, a major downside is dilution which represents equity it will be difficult to get back.

5. Convertible debt: A key advantage of this is delaying dilution while options in relation to the terms offered include “sweetening the pot” through discounts and having a “valuation cap” for debt to equity conversion based on a maximum company valuation.

Working capital

6. Supplier/creditor repayment arrangements: Suppliers are generally willing to be supportive when a business is going through a difficult period but management need to build trust and provide some certainty and visibility in relation to how/when amounts due will be paid down.

7. Deferral arrangement for tax liabilities: An approach similar to that for suppliers works well but bear in mind statutory authorities are process and regulation driven and therefore charging interest/penalties is often non negotiable while if repayment arrangements are agreed and then breached this may trigger immediate demand and recovery actions.

8. Reduce inventory: In the short term achieved through targeting old, slow moving stock and also reducing product lines. The hardest part of reducing inventory can be emotional ie not wanting to sell at a loss or low margin. However, immediate cash is a lot more useful than future profits.

9. Accelerate debtor collections: There are short and long term solutions to debtor reductions. As an example, short term solutions involve strengthening collection systems. However, it takes longer to improve billing accuracy and therefore reduce collection disputes.

10. Invoice factoring and discounting: Expensive money but the effect on cash flow can be dramatic, especially in businesses with extended working capital cycles. These facilities are much more common and accepted in the market than was the case historically.

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