Invoice Finance

Transcript

James Sykes

Afternoon, everybody, and thank you for joining. My name is James Sykes, Head of Invoice Finance product for Lloyds Bank. So firstly, welcome to the first Lloyds invoice Finance webinar. So delighted to share some of our thoughts with you. And firstly, a big thank you. We don't take for granted you giving up your time, to come and listen to us today. But really excited to hopefully bring to life invoice finance and what it might be able to do for your business or for your customers. So I guess to start with, why are we hosting today's call? I think there's three key reasons. First of those is around demystifying the myths around invoice finance. I'm sure we hear some of that, though the call I think unfairly and incorrectly invoice finance is often seen as a proposition that's for businesses in difficulty. It's really complicated. It's really high cost. We're going to break through a number of those today because it's a proposition that should be really mainstream because of the value that it brings across businesses in the UK. Secondly, we really want to bring the potential value of invoice finance into your business and what it can do. I'm really lucky in some of the customers I get to engage through my role and it's really inspiring to see the stories of growth, investment, building sustainability, unlocking new tech in their business because of invoice finance. So we really want to bring some of that to you. And the third one of those is just really trying to help you understand what invoice finance is, so you can make an informed choice for your business. One of the things that always worries me is we're really au fait with the traditional working capital products. Invoice finance is a bit different. We don't use it in our consumer lives and that means that maybe we don't always make the best decision at the best time. So we really want to hopefully bring to life the value. So you can make informed choice for your business, whether that be invoice finance or not is to help you.

So I'm extremely passionate about the value of this business. I've been in a couple of years. I've learned a lot and the value we bring to customers is really, really powerful and inspiring. But frankly, no one brings the value to life more than a customer who's used it day in, day out for long periods. So the main part of this call today, and I'm delighted to be joined by Charles Baughan, owner and MD for Westaway sausages. I had the pleasure of speaking to Charles last week and we could have easily recorded that session because it brought to route so many of the key messages. Charles has used the solution for 25 years and really tells a great story of the value that it's brought to his business and has helped grow the business, which is really important. Claire Ensell MD for Invoice Finance Portfolio will be our question master to kind of hopefully put some really interesting challenging questions to Charles to bring that to life. So that's going to be the bulk of the call. But before we hand over to Charles and Claire, you can just move me on to the next slide. Probably just to start with a bit of an overview of what invoice finance is, in its simplest terms and why it could actually bring value into your business. So what is it in its simplest term, it's a solution to unlock value in unpaid invoices in your business so value that you may well be waiting 30/60/90 days for that money to come in. Through Lloyds you may be able to unlock 90% of that value within 24 hours, which is hugely valuable. Who's it applicable to? Frankly, any business that's selling to another business and invoices in arrears. Really simple in terms of who could benefit from this as a solution. But fundamentally it's a working capital solution trying to enable you to unlock cash flow earlier than maybe you can today. And why might you be interested in using it? I think a core part of invoice finance is it might actually enable you to get more cash flow than you can through other propositions.

It grows with your business, which I think is really, really powerful. Every time you get a new customer, effectively you're getting more access to working capital, enabling you to grow faster and probably why I really love it, it is there when you need it. And that might be day-to-day, you might be using it every single day to help run your business. It might help you manage particular working capital cycles, whether that be weekly, monthly, seasonal. But I think it's really powerful at enabling the unlocking and seizing of new opportunities that could be taking on new customers. It could be growth, it could be investing in a new business, it might be investing in new tech, it might be investing in sustainability. It's there always waiting to enable you to unlock those opportunities. So hopefully that gives you a sense of invoice finance. But to truly bring it to life, I'm delighted to introduce Charles Baughan from Westaway sausages and Claire Ensell from Lloyds. Claire over to you.

Claire Ensell

Thanks, James and I’d echo all of that and say thank you again, Charles for joining us today because absolutely right that this never comes to life in the same way as when we hear from somebody who actually uses it, so thank you for giving up your time. I don't know if we start with something really basic. So do you want to tell the guys a little bit about your business and maybe how invoice finance has helped you with what you've achieved so far?

Charles Baughan

So we're a typical food and drink business. We turnover, just shy of £5 million. And we employ about 25 staff and we deal with UK retailers, wholesalers, food service companies and we also export around the world including East Asia and the Caribbean. But we weren't always like that. And so I first became involved with the business when it was turning over £90,000 in 1998 and we really have used invoice finance and to be honest we did use it, as a way of borrowing that was flexible and could cope with our growth because we started taking on you know we were supplying a corner shop with a few sausages and the next moment we're supplying our local Sainsbury's, you know, 5 stores and then they suddenly said, Ohh, can you do 30 stores? And then then it became 90 stores and then Tesco came on board and you know to be honest, you know, we were quite naive and we pay for our meat, it's fresh meat. And so we pay our farmers on 28 days and that's what they survive on. They need to get payment for their meat, and quite often you'll be dealing with somebody who's remote from where you are. Like a, I don't know, Sainsbury's account manager or whoever it is, you know any name. Who might not necessarily understand that you need to be paid on 28 days and it suddenly becomes 60 days. And if you're not careful. You run out of cash. So that's where we started.

Claire Ensell

That's brilliant. So it's kind of a bit of a mixture there, isn't it? Of the growth story and actually bridging that gap in the working capital cycle between the producer and almost the end distributor, whether that's a big supermarket or you know something like that kind of leverages the flexibility of the product to help you to make all of that work for, I guess both ends of the supply chain. I mean as we said, you've been with us for 25 years now, which is incredible and a mature business, right? So you know your onions, you'll certainly have options in terms of how you choose to finance your business now and going forwards, what is it about the invoice finance proposition and product that makes you stick with that as your solution of choice over some of the other things that you would definitely have available to you.

Charles Baughan

Look it's just a very flexible product. You don't have to draw down the amount you've got debt headroom there. So you know the last four or five years have been pretty challenging and you know, we can think about things like COVID or, you know, and there have been other things as well. You know, there's been huge rises in cost of raw materials and if you're dealing with a big customer, you could be facing a price increase that you either pay your money or you don't get the stuff. Whereas your customer might say, well I I've got a policy on price changes and you've got six months to wait. You know, we'll give you a price rise in six, so you're effectively, you know, you're running on a lower margin. And so that's where invoice discounting can could step in. In COVID, where we had huge sector swings, you know, people still need to eat, but food service slowed right down retail spiked. And so it was a kind of again, the flexibility of that of that product was perfect for us. It just gave us confidence so that we could get on and navigate the challenges that were faced it you know, getting the cash in. We found food service companies suddenly saying I'm sorry we're not paying anything now for 90 days and you know you but we need meat and we need it in 28 days you know. That shows you the kind of value that it's had to us just over the last five years when, you know we had deposits in our accounts and we're very happy. Thank you. But it also gives us flexibility in the fact that if that the timing might not be right to purchase a particular piece of kit or some new software, whereas we can use the invoice discounting. It gives us flexibility and just, you know, debt headroom really.

Claire Ensell

Yeah. So that ability to adapt, I guess with confidence to whatever circumstances, I guess potentially outside of your control, and you can respond effectively to those. I guess the other side of that is the stuff that you choose to change. So when it comes to things like how you want to innovate or take your own business forwards in a different direction, as it's been kind of equally suitable to support those types of decisions. For you, over the last kind of 25 years.

Charles Baughan

Yeah, I think so. We really focus on sustainability and action on sustainability. So we have driven forward certain innovation. We no longer pack in plastic trays, we're packing in compostable cardboard trays and we've developed a polymer, which is compostable and we currently invest roughly about 5% of our turnover in sustainability initiatives and sometimes these sustainability initiatives and they affect margin in the wrong way until we get through the kind of launch period. We've now successfully managed that particular product through that period and we've made some 20 million packs of sausages in sustainable trays and that the invoice finance aspect of that it has helped bridge that gap and helped us with our margin or not help us with our margin but help us when our margin has been affected by some of the transition that we were doing in our business. I think that that's you know, now we're looking at other things we're looking at, you know, machine learning, investments in AI and some of these things are not necessarily tech, you know, going to be suitable for asset based finance because the knowledge based and we can be far more flexible with something like invoice discounting because you know it there aren't so many questions to you don't have to spend so much time justifying why you're doing it to be honest.

Claire Ensell

No, absolutely. And I guess the fact that it takes a holistic view of the overall asset base means that it can support, I guess your long term strategy as well as your kind of short term cash flow requirement. It gives you as you say that it's smooths the peaks and troughs that you might otherwise get with particular investments or something that that you're looking to do with your business for the, kind of long term benefit. I'm going to go off on a bit of a tangent now, so I know Charles something else that you're really passionate about is supporting emerging entrepreneurs. Yeah, in your own community. So working as I guess a mentor for businesses in your local area. When you have conversations with those folks. Why is it that people don't use invoice finance? Is this an awareness piece? Is it a perception? You know it is it. Is it purely that they don't see the broader benefits of this as a way of funding their businesses.

Charles Baughan

I think all of the above, to be honest. So you know I met a small company the other day. I said, look, tell me about your problems are and they and they said well to be honest, the main problem is that he's getting the cash in. And because I said, well, why, why are you not getting the cash in quickly? He said, well, you know, we've won some new business, but it's with a chain of cafes and they're paying me 60 days and I can't afford that with my current cash flow. You know, I have some savings, but I don't want to put that in to supporting my cash flow because I need the raw materials to be able to serve the customer. I looked at it in a in a slightly different way and one of the things I think about invoice finance, which is I think really important is it actually teaches your office to manage their invoices correctly. So in other words, get the invoice correct in the first place. And then and then make sure you've got proof of delivery and then actually run an age debtor so you know where you are and the the facility that's provided you know with invoice finance. Actually, ensures that those protocols are all in place and you know, we very, very rarely do we have any bad debt because we're actually managing our ledgers correctly. There's that there's that aspect, but, I think also there might be some people. I think in the you know I first started using invoice discounting in the 90s and there was a real stigma, I think then about. You know it's the, it's the lender of last resort and so on and so forth. And I never really saw that and in actual fact you know we've been through the the difficulties of starting up a business, running out of cash, you know, crisis after crisis and it's the same with any small business. And if you scale a business, you know up past 1 million after a startup you're doing pretty damn well. But we've continued with it because it is such a flexible, useful tool for us to use. And it's it just means that I can get on with running my business and innovating and making it, you know, making changes, without having to worry too much about the cash side of things. Obviously, it's vital, but I know that we've got good procedures in place that are looking after that and managing it, and you know I'm working together with my bank to actually achieve a result.

Claire Ensell

Absolutely fantastic. I mean that. That's something I've just noted down; I can get on with running my business, which is exactly what you would hope a facility like this would help you to do so. You pulled out a couple of bits there in terms of encouraging the rigour around managing kind of your internal processes and understanding the fundamentals I guess of your cash flow and your working capital cycle, do you think there's something that maybe we should be doing to help better educate people around that type of thing, which would maybe unlock this as directionally a product that people would? They would see they would see the value in it more readily, I think is probably what I'm saying.

Charles Baughan

You know, I've been to workshops and where you know, they teach you the benefits of lean manufacture or something like that and you play like a card game or play around with Lego models making things and I think you know I'm a fairly simple type of bloke and one of the things we we're organising, a climate action workshop and I've said that I want all the displays, to have games in them that people can play because if you do something then you will remember it. And you will understand it. And I think that the sheer, You know, it's like a card game. You turn up the card and it says you've won a £5 million contract with Tesco. What do you do next? ABC and D and I think that, you know, the simplistic nature. You know, and that's why business can be fun, but it's only fun if you're in the know and stress is only caused by lack of information. So it's kind of, yeah, you got be in control of your business and I think looking after cash is absolutely, you know, they always say it, don't they? They say, oh, cash is king. Well, with invoice discounting, you know you can at least make sure that the King's kept in his throne. You know what I mean rather than you have to dash around after him the whole time.

Claire Ensell

Quite right, indeed. Ohh Charles, I slightly got one eye on the time, a wise man once said to me a fair wind never made a fine sailor.

Charles Baughan

That sounds very familiar.

Claire Ensell

It does indeed.

In terms of the the folks on the call, so whether that's Lloyd's colleagues or clients or anybody who is like dealing with the business community from your perspective and you know will stop short of anything political. What challenges and therefore opportunities do you think you're seeing in kind of the short term that maybe looking at a business cash flow or changing a funding solution, might be relevant for.

Charles Baughan

I think that there's two things really. One is that there's no doubt about it that in the next 10 years, we've got to make this transition away to knowledge based industries and away from kind of semi-skilled or unskilled industry to knowledge based and you know, the government has to see that we actually have to be more productive and have a more engaged workforce and we have to do things we have to optimise how we use all resources, you know, from a sustainable point of view and also from a business point of view. And there are some uncertainties in the next you know, we're we're all looking ahead to the 28th or you know of this month and the budget statement because there will be surprises in there. There will be opportunities as well. And you know I hope that there will be some tools in there that business can use. To really align themselves to where the opportunities are in the future. So I hope that we're going to see. Some types of interventions that kind of inspire business owners to take action and to invest and invest in their businesses and care for their businesses. But I you know, I really hope that we're not going to see anything that's too onerous and so again it's in the the fair, the fair wind never making a fine sailor. You know, I think that there's a lot of business owners out there, you know, very typical to myself, who had a very turbulent last five years. You know that there has been uncertainty everywhere and they've done bloody well to get to where they are today, if they've, if they've started their business in 2018, 2019, then hell’s teeth, hats off to them for getting to where they are now and you know and that's that's great. But you know it's aided and abetted, you know, by having a deep toolbox of tools, management tools, financial tools, being a keen observer for opportunities as well. And I you know I think that this is you know invoice finance is just one of the tools in my toolbox that I think everybody should carry in their toolbox you know there will be certain situations that where it's the best tool. There will be certain situations where it's not the best tool.

Claire Ensell

Is the most fabulous Super Bowl sound bite. I'm loving it, so I guess it's kind of a final bit before I I hand back over to James, I guess. Out of everything that you've said that one of the one of the biggest bits that I've taken away is again the flexibility is really at the core in terms of this as a product and how that helps you to adapt, innovate, drive efficiencies, all of that with confidence. If you were describing this to somebody new, then would, is there anything else you'd add?

Charles Baughan

I think that you know, you've got to talk to your client manager. So find out you know who is the who's the point of reference. You know, we've got a great client manager, you know and he's been with us for a long time and so it's understanding the product fully and taking you know their experience. You know businesses are built on trust and you know you've got to trust your your advisors and if you're working with your bank you know then get a specialist in to look at your business and actually see if Yeah, this is the right tool. Use it.

Claire Ensell

Brilliant. Thank you so much, Charles. I could talk to you all day. I'm not sure if you'd enjoy that as much as me, but I will thank you again and I will pass back over to James.

James Sykes

Just to reiterate, thank you so much, Charles. I feel inspired and ready to go do more work, but kind of Claire covered a couple, but I jotted so many notes down in key messages and I think that awareness 1 is critical. I think that story of going from 90K turn over to greater than 5 million is a brilliant story of growth. I love those stories. The ones that make me nervous are the customers who don't find the opportunity. And to your point, it doesn't mean it's the best product or the only product, but we definitely want businesses to consider it as an option for growth and that kind of point around stigma it's very clear from the last 20 minutes or so, your business is not a business that's in difficulty. It's a business that's kind of doing some great things in the community as well. So big, big, thank you. But yeah, words like flexible, confidence, coping with growth, dealing with challenging times, bridging the gap really stood out for me. And as Claire said, getting on with running my business, working capital should be there to support your business, not to be intrusive. And my new line is cash is king and IF ensures the king is kept on his throne is my new strap line on my e-mail signature. So huge thank you, Charles. Marco, I don't know if you're going to pop up the slide, but if you want to find out more there are a number of ways to engage with us. We'll send this out afterwards. So phone number up there via your existing contact in Lloyds or there's the QR code that will request a call back. We will also try and reach out and send some information post so you can make an informed choice. But huge thank you for everyone who's joined us this afternoon we definitely don't take for granted. You're running your business and this takes time away from doing that. So big thank you. But huge thank you, Charles, for sharing your story and being with us for 25 years. Thank you all. We look forward to doing more of these webinars to bring the value to businesses in the UK, but thank you everybody and have a fantastic rest of the week.