Blog23 Jul. 2018

Is your business restricted by the timing of your cash flow?

How can Cash Flow Funding help?


Take a simplified case
  • You buy $100 of stock for cash at a 10% discount;
  • By paying your supplier on a cash basis you save $10;
  • You pay $90 and onsell the stock on credit for $200 and then wait for up to 60 days to be paid;
  • Ignoring the time value of money etc. your direct profit is $110.

Now let’s see how the use of Cash Flow Funding’s (CFF) services can improve upon that

You send your invoice to CFF rather than waiting 30-60 days for payment from your customer and we provide you 80%/$160 right away (with the residual 20% once the customer has paid us and less our fee).

Say you immediately use $90 of that $160 to facilitate another sale of $200. You keep the remaining $70 for now.

You’ve saved a further $10 by again paying immediately for the stock.

Once again we fund the invoice providing you a further $160 right away.


Now let’s make it a little more interesting

You decide to take that second $160 plus $65 of the $70 you kept from the first sale and use the resulting $225 to buy, at a 10% discount, $250 worth of stock

With CFF’s assistance you’ve saved a further $25 by way of a discount received.

You sell the stock for $500 and CFF fund that invoice too, providing you $400 right away.


Let's stop there for now… before I get lost

You have now made sales of $900 ($200 + $200 + $500) and immediately received from CFF $720 ($160 + $160 + $400).

$180 (40 + 40 + 100) is the difference between the sale price of $900 and the $720 you have received from CFF. The majority of which you will receive once the customer has paid $900 to CFF.

With CFF’s assistance you have received in total $45 ($10 + $10 + $25) in discounts from your supplier.

Also remember you have $5 ($70 – $65) at your disposal, it’s not for coffee!

For simplicity we have deliberately excluded any fees from the above transactions. We typically deduct our fees from the initial release but in this example we’ll assume they’re taken as part of the final wash-up and deducted from the residual $180.

If our 60 day fee were 4.00% of the value of the funded invoices (2% for finance and 2% for administration) then our fee for all three transactions would be $36 ($8 + $8 + $ 20)

Consequently after payment from your customer we release to you the remaining $144 ($180 - $36).


We demonstrate the above in the table below:

Summary of the Three Funding Transactions
Month    Transactions Summary
  ABCSumYouCFF
JuneInvoice value ($)200200500900  
 Less Residual ($)4040100180  
        
 Immediate release ($)160160400720720 
        
Late JulyCustomer pays CFF ($)      200200500900  
 Residual available ($)4040100180  
 Less CFF fee ($)882036 36
AugustFinal release ($)323280144144 
Total funds released to you & fees charged ($)86436


Offset of CFF’s Fees Against Discount Received
     Transactions 
     ABCSum
 Stock value ($)100100250450
 Purchase price ($)9090225405
 Discount received ($)10102545
 Less CFF’s Fee ($)882036
 Saving2259
Total amount your discount exceeds CFF's Fees!9


To recap you have made sales of $900.

We have released to you $864.

Your customer has paid $900 directly to us.

You have gained cash payment discounts from you supplier of $45.

Yet you have paid us $9 less than that ($36) to more than quadruple your sales.

Paradoxically your direct costs actually decrease by utilising CFF’s services. CFF’s fees are less than the prompt payment discount.

If you had just waited for payment directly from your customer you would have made sales of $200 and a direct profit of $110.

With CFF’s funding your direct profit can be shown to be $459 which is an increase of $349.


Table of Profit

 Transactions 
    ABCSum
Sale price ($)200200500950
Purchase price ($)9090225405
Immediate saving ($)110110275545
Less CFF’s Fee ($)882036
Simplified profit ($)102102255459


Contact Cash Flow Funding to get the ball rolling now. 09 579 52404 or info@cff.co.nz

Marty