- 08 Oct
Funding A Seasonal Toy Manufacturer
We were recently able to help find funding for a toy manufacturer with a seasonal trading pattern (there is a good definition of a seasonal trading pattern here). The manufacturers were a newly formed business but growing so fast that they needed more working capital in order to fund their growth. They needed cash in order to be able to pay their large suppliers to terms.
Factoring can work perfectly in these situations, as the amount of funding grows in line with your level of sales. This means that the more invoices you raise, the more funding you get. Some businesses prefer to opt for selective facilities i.e. to get funding against just one or a few invoices, but in this cases they wanted to raise as much cash as possible, on an ongoing basis, so a whole turnover facility fitted best.
The issue with whole turnover facilities, for seasonal businesses, is that they often include minimum fees. This is the minimum charge, normally annually, quarterly or monthly, that is put in place to ensure that the client's turnover falls somewhere in the ball park of that which was predicted. The reason for these fees is that a deal will normally be set according to the projected level of turnover. The higher the projected turnover, typically the finer the rate that will be quoted. The issue for a factoring company is that they could price a deal on a large projected turnover, the businesses fails to achieve that level of turnover, and a very small business could be charged as if it was a very large business. With the issue of minimums in mind, the other benefit of the factoring facility that we found for our client was that it came without any minimums for the first 6 months (to enable them to get their business off the ground) and thereafter the minimums were applied quarterly to help negate the effect of seasonal trading peaks and troughs.