Maintaining a complex supply chain while driving the business’s financial performance relies heavily on cash flow management. National Resources Managing Director, Leon Cox, says that having access to working capital to bridge any delays in cash conversion is vital.
“Working capital is critical to our business. We buy materials from overseas suppliers and pay when the goods are shipped. It’s on the water for 30 days, and then we offer customers terms of trade locally. That’s a transition period between 90 and 150 days between paying for goods and being paid ourselves when we need money upfront.”
Navigating a multi-faceted liquidity crunch
During 2022, Leon says that demand for National Resources products surged as customers stockpiled materials amid ongoing supply chain disruption. The business significantly increased its on-hand inventory to keep pace with customer requests, with cash flow pressure also arising from increased shipping lead times and rising commodity prices.
At the same time, changing terms of trade from overseas suppliers exacerbated the business’s liquidity issues. Leon says that following a broad-based tightening of credit facilities among suppliers, National Resources went from paying for goods when shipped to being forced to send a 30% deposit when ordering.
“We’d be sending money to our suppliers 45 to 60 days before anything was shipped and tying up a significant amount of cash in deposits,” Leon says. “To address these issues, you must make amendments to how you do business, how you pay overseas suppliers and give terms of trade to local customers.”
“Finding new and efficient ways to access working capital and free up cash is vital to that equation. We knew we had to approach a bank and get some help.”
Solving cash flow issues with innovative structuring
Leon says that National Resources looked at how it could urgently improve its cash flow, realising the only viable way was to adopt a different borrowing model. “CommBank’s working capital specialists presented a lending model to us which was completely different to what we had seen before, and really, it solved our cash flow problems in one stroke,” Leon says.
For National Resources, the solution was CommBank’s Working Capital Facility that unlocked the value of current assets on its balance sheet with the financing secured against the business’s receivables and inventory.
The facility also provided flexibility beyond previous finance limits that National Resources had in place with its former lender. That allowed the business to access greater liquidity as needed, helping National Resources execute its growth strategy with confidence and navigate fluctuating demand.
Understanding and supporting the business vision
Leon points out that while the structure of the lending facility is extremely important, so is the relationship with a banking partner. “The strength of that relationship depends on how well someone understands your business,” Leon says.
“As our business grew by 40% in 2022, we needed a partner that could support us as we scaled up. The CommBank team turned up and spent weeks going through our numbers and cash flow. In fact, we didn’t tell them what sort of credit facility we wanted; they worked with us to determine what sort of credit facility would best suit our needs.”
“When they left our office that day, we turned to each other and said, ‘that’s amazing’ they understand what we need. It was obvious that the team regularly deal with businesses like ours.”
“They knew the right questions to ask, and not just about cash flow and what’s happening today. We could clearly see it was about understanding and supporting the business’s needs and our operational and financial vision well into the future.”
The advantages of working capital innovation
CommBank’s team of working capital specialists developed a solution for National Resources that provides the flexibility and cash flow assurance to continue its growth momentum. That includes:
- Better management of cash conversion cycles in an evolving market, providing confidence to navigate cash flow uncertainty across its complex supply chain.
- Financing secured against receivables and inventory, creating liquidity from current balance sheet assets.
- The flexibility for the facility to encompass import-export trade facilities, structured letters of credit and bank guarantees.