The necessity of cash flow Hertfordshire Chamber of ... › files › file › Cash Flow... · Hertfordshire Chamber of Commerce 5 November 2019. 2 The Need for Cash Flow Management

The necessity of cash flow management

Hertfordshire Chamber of Commerce

5 November 2019

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The Need for Cash Flow Management

• A business is an engine that runs on cash

• Vital to know

• How much fuel you have

• How much you will need, and

• When you need to fill up

• If a business runs out of cash, it will break down

• Effective cash flow management improves efficiency, reliability and performance

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The Need for Cash Flow Management

• Effective cash flow management will

✓ Show how trading activity generates and consumes cash

✓ Predict future cash flows more reliably

✓ Inform and improve business decision-making

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Tools for Cash Flow Management

Financial Information

➢ Regular management information

• P&L, BS and (ideally) Cash Flow

• Aged creditors/debtors

➢ KPIs to show early warning signs

➢ Automate / outsource?

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Tools for Cash Flow Management

Forecast

➢ Prior planning prevents poor performance

➢ Rolling 13 week cash flow forecast

• Realistic assumptions

• Shows how much and for how long

• Timing is everything

• Mitigating strategies

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Tools for Cash Flow Management

Support

➢ Analyse & interpret information

➢ Resource

• Financial controller

• Credit control

• Outsource

➢ Free up management time

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How to Avoid Common Issues

✓ Build a buffer

• Headroom for unforeseen events

• Remember the tax man…

✓ Make sure you get paid

• Derisk

• Debtors – when are you paid?

• Disputes / Bad Debts

✓ Do you have the right finance?

• What is the impact on cash flow?

As soon as you think you might have a problem…

…seek expert advice

SMEs & Debt in the UK

November 2019

SMEs in the UK

Market Potential

There are over 5.7 million established

SMEs in the UK, and this number is growing.

Backbone of Employment

As of now, over 60% of UK private sector

employees work for an SME.

The Opportunity

52% of SMEs are now aware of P2P Lending.

ArchOver is well positioned to fill the

gap left by banks.

Substantial Growth

Over the last year, over 382,000 new businesses

were formed. That’s more than 1,000 per

day.

Unhelpful Banks

Banks lent £57.7bn to SMEs, however £57.2bn

was also repaid, meaning that net lending declined by £0.5 billion from 2017.

Data Courtesy of the British Business Bank Small Business Finance Markets Report 2018/19

SME Attitudes to External Finance

Courtesy of the British Business Bank Small Business Finance Report 2019

A Shake-up is Needed

47% of UK SMEs are permanent non-borrowers, and have never used external finance. This has increased from 34% in 2012.

Negative Connotations

7 in 10 businesses would rather put off growth than accept the use of external

finance. This is less driven by the current climate, but by attitudes towards external

finance.

The Banks are Unhelpful

The amount lent out by the UK’s major banks in 2018 was at the same level it was back in 2013 (£166bn). There is a lack of confidence to do more.

Hesitancy

SME demand for external finance has been declining. In

2012, 44% of SMEs were using external finance,

however by 2018, only 36% continue to do so.

It’s Not all Bad News – UK Private Debt

Courtesy of the British Business Bank Small Business Finance Report 2019 & Deloitte Alternative Lending Autumn 2018

Sustained growthAccording to data sourced by Deloitte, there has been a steady escalation in the number of private debt deals over the last 5 years; from 68 in 2013 up to 137 in 2017.

Small but growingDespite being a youthful

asset in Europe with a small market share, debt funds are

having a growing influence.

Increased uptake from businesses

Institutions like the British Business Bank have encouraged a sustained

increase in the uptake of companies benefiting from their funds: from 22

in 2014 up to 106 in 2017.

Venture debt also on the riseSimilarly to mid-market debt, there has been a notable increase in the number of venture debt deals over the lase decade. Preqin reported a stable increase in deals up to 2017, while the potential 2018 dip could be explained by a time lag.

Asset & Invoice Finance – Mixed Messages

Courtesy of the British Business Bank Small Business Finance Report 2019 & BCR World Factoring Yearbook 2018

A slowing market?Despite the gradual increase in the amount lent to SMEs through asset finance, the number of businesses taking it up has stagnated, and is now beginning to fall.

Challenges from afarDespite the UK’s historic

dominance in this area, it may not hold that title for much

longer. China almost matched the UK in 2017 for factoring

volumes, and it may overtake the UK in a few years.

Government SupportAs of 2018, the government increased its own Annual Investment Allowance for plant and machinery investment from £200,000 to £1 million to help stimulate further business.

UK Market ControlThe UK Invoice Fiannce market

is the largest in the whole world, with the 2017 volume

amounting to over £300 Billion, and has continued to grow by

3% in 2018.

P2P – Perhaps the Future of Debt?

Courtesy of the British Business Bank Small Business Finance Report 2019

0.20.41

0.73

1.38

1.972.33

0

0.5

1

1.5

2

2.5

2013 2014 2015 2016 2017 2018

GB

P (

Bn

)

Year

Peer-to-Peer Business Lending Flows

Continuous Growth

Since its inception, Peer-to-Peer business lending has achieved a greater share of SME finance market. In fact it has grown by over 1000% from its 2013 value.

The Importance of Business Lending

In 2018, business lending accounted for 37% of the total Peer-to-Peer lending market share of £6.2bn, which amounts to £2.3bn.

ArchOver - Who We Are

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We Help British BusinessTo date, ArchOver has helped fund in excess of £110 million to british SMEs.

Our Lenders’ SuccessSince 2014, Lenders have earned over £7.1 million in interest.

Parent CompanyArchOver is a member of the Hampden Group, the largest provider of Members' Agency services in the Lloyd's of London insurance market.

Rates of Interest Our Lenders earn from 7% to

10% per annum.

SecurityLoans are secured against the borrowing company’s assets,

or by grants.*

RegulationArchOver is authorized and

regulated by the Financial Conduct Authority (FCA).

*Loans backed by grants are unsecured. Figures accurate as of 04/11/19

Lending with ArchOver

LendingOpportunities

Direct Lending

Invest directly into the businesses you want to via the ArchOver platform.

Escalate Funding

Support a unique dispute resolution service by lending against their ongoing casework.

Via an SPV

Invest in credit approved loans via a special purpose vehicle, subject to mutually agreed terms.

Using an IFISA

Invest your annual tax free allowance into

Peer-2-Peer loans.

The Investment Plan

Invest automatically into a portfolio of 10 secured

businesses via our Investment Plan.

Borrowing Characteristics

Loan PurposeBorrowers can use the funds for any legitimate business purpose, e.g. working capital, or to replace an existing facility.

RefinancingIf a Borrower wishes to refinance a loan, they must inform us at least three months before the end of the loan and repeat the credit analysis process.

Key PointsArchOver takes an All Assets

Charge on the Borrower business registered at

Company’s House.*

Loan DetailsLoans values can range from £100,000 up to £10 Million,

with fixed terms between 3 and 36 months.

Core PrinciplesBorrower businesses must be established, have a proven management team, and must have relevant security or claims to cover the loan. No Personal Guarantees required.

SectorsMost non-seasonal businesses

are considered. Sectors include: Technology, Engineering, and

Financial Services.

*Excluding our “Advance” services.

The Borrower Journey

IntroductionsArchOver’s Commercial Team identifies potential Borrowers, assesses their viability, meets with their management and finally submits a commercial paper.

The Credit ProcessArchOver’s Credit Team assesses the Borrower’s management team, their business plan and reviews their financial accounts and projections.

The Final DecisionOnce the Credit Team has conducted its analysis, the approval process is passed to ArchOver’s Credit Committee.

The PlatformIf the Credit Committee approve the loan, it is then marketed to ArchOver’s Lenders via the Platform.

Loan CompletionWhen the loan runs to term, Lenders receive their original

capital back, while the Borrower may have the opportunity to

refinance their facility.

The Loan TermThe loan is monitored on a

monthly basis by ArchOver’s Loan Management Team, and site visits will be conducted every 6 months.

Borrower RevenueIf Applicable, all Borrower revenue

will begin to pass through ArchOver’s controlled account.

Funding CompletionThe project funds and draws down,

subject to all paperwork being in place.

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Lending Services

Earn from 13% p.a.

Unsecured short term lending against a Borrower’s R&D tax claims to HMRC.

Earn from 9.5% p.a.

Secured against a Borrower’s uninsured Accounts Receivables, or their unassigned Contracted Revenue.

Earn From 9.5% p.a.

Secured against a Borrower’s Contracted Recurring Revenue, which is assigned to ArchOver.

Earn from 9.5% p.a.

Secured against a Borrower’s Accounts Receivables, which are also credit insured to enhance the security.

Secured &

Insured

Research & Development

Advance

Secured &

Assigned

Secured

Interest from 9.5% p.a.

Loans are secured against the Borrower’s Accounts Receivables.

All Borrower revenue must pass through an ArchOver controlled bank account.

ArchOver takes an All Assets Charge over the

Business.

The business must have been established for at least two years.

Borrower Accounts Receivable must be insured by Coface, the second largest credit insurer in the world.

Secured & Assigned

Interest from 9.5% p.a.

Loans are secured against the Borrower’s Contracted Recurring

Revenue.

All Borrower revenue must pass through an ArchOver controlled bank account.

ArchOver takes an All Assets Charge over the

Business.

Borrower businesses must be established and profitable.

Loans are usually taken no more than three months in advance of Contracted Revenue.

Secured

Interest from 9.5% p.a.

Loans are secured against the Borrower’s Accounts Receivables or

their Contracted Recurring Revenue.

Borrower revenue cannot necessarily be passed through a controlled account (e.g. when working with Solicitors firms).

ArchOver takes an All Assets Charge over the

Business.

Accounts Receivables cannot be credit insured, or Contracted

Revenue cannot be assigned (e.g. due to government work).

Research & Development Advance

Interest from 13% p.a.

Suitable for companies with a successful history of at least two

years of R&D tax claims.

Funds from the claim are paid directly to an ArchOver controlled bank account.

The Research & Development Advance is

unsecured.

Short term lending agains a Borrower’s R&D tax claim to HMRC.

Borrowers must retain third party professionals to prepare the R&D claims.

Howard Miller, Commercial Business DevelopmentM +44 (0) 7884 312 803O +44 (0) 203 021 8100 [email protected]

This presentation is intended to provide information about investments and investment services to professional investors and sophisticated investors who are familiar with and capable of evaluating the merits and risks

associated with investments of the kind described. Also, it is not intended that it be relied upon as advice to investors or potential investors, who should consider seeking independent professional advice depending upon

their specific investment objectives, financial situation or particular needs.

ArchOver is authorised and regulated by the Financial Conduct Authority (FCA) under registration number 723755ArchOver is not covered by the Financial Services Compensation Scheme. Capital at risk

Past performance does not guarantee future returns5th Floor, 40 Gracechurch Street, London EC3V 0BT

UK limited company registered in England and Wales number 7235487

Matt HowardPartner Insolvency & Recovery

Partner Escalate Disputes

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Why was Escalate formed?

• The founders of Escalate spent seven years researching, understanding and devising their

strategy to bring Escalate to life

• They identified that the current system did not enable SMEs to secure monies due to them

• To meet Escalate’s objective of ‘access to justice for all’ their focus was on building a panel of

firms and educating the market so that all SMEs can access support. This resulted in the

creation of a network of trusted partners

• Targeting five key areas, Escalate now work with: accountancy firms, Legal firms, membership

bodies, lenders and wealth management providers.

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Why was Escalate formed?

• Over three quarters of UK businesses are being paid late

• Average burden is presently over £30,000 at least half-day per week spent

chasing unpaid invoices

• 50,000 SME’s fail each year as a direct result of late payment of invoices

• £41 billion locked up as aged debt in the UK last year.

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Escalate

• Exclusive partnership with Price Bailey for Eastern Region with Escalate

• New cash flow focussed dispute resolution service

• Negotiation

• Corporate recovery specialists

• Incentive to reach early settlement

• Fixed fees payable only if successful settlement reached and cash received

• Litigation

• No up front court costs, Counsel’s fees or other disbursements

• Fixed fees that you don’t pay unless your case is successful

• You won’t pay the Defendant’s legal fees if you are unsuccessful.

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The amount owed to UK SME’s in late payments.

Zurich Risk Index

The percentage of small businesses with at least 1 commercial dispute.

Federation of Small Businesses

Why do commercial disputes matter?

• Recent research has shown that commercial disputes are a major issue for businesses; specifically SMEs.

• This provides a major opportunity for us to help our clients

70% £45Bn

The Legal Services Board in 2018 stated that nearly 90% of SMEs were not turning

to the legal profession for help in resolving their disputes, and that they estimated

there was in excess of £40 billion written off annually because of it.

The amount of money SME’s are loosing each year through disputes.

You Gov£13.6Bn

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How does the process work?

• We begin negotiating on your behalf as soon as you engage

us, using experienced negotiators to encourage the defendant

to settle quickly in your favour without the need for litigation.

We allow up to three months for this negotiation

• If the defendant is unwilling to settle in this timeframe, we

begin preparing for litigation. We’ll take care of this process

for you, paying the up-front fees and associated costs.

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Escalate success

• 500+ cases assessed

• Access to over 250,000 SMEs

“A clever, clever concept that gives SMEs real prospects of recovery without having to spend exorbitant legal fees or having to write off debt.”

Judging panel, The Lawyer Awards

• Over £80 million in recovery

• No losses to date

CONTACT US

T: +44 (0) 1603 567925

E: [email protected]

W: www.pricebailey.co.uk

Matt Howard, Partner

Insolvency & Recovery