Leading Australian and New Zealand steel distributor Steelforce is a great example of the trend towards larger, more established businesses using debtor finance to fund their growth strategies
Many growing businesses have war stories about the frustration of being unable to get a hold of their banker when needed, or about banks’ financial terms and conditions that stifle rather than enable growth.
When Steelforce, an Australian and New Zealand-based business involved in steel manufacturing, export and distribution, needed flexible finance to fund their growth strategy, they turned to debtor finance.
Matt Gerrard, Chief Financial Officer for Steelforce, said traditional banks had not understood their highly geared business and had wanted to provide lending with inflexible fixed repayment options.
“These fixed term loans and repayments did not allow us the flexibility to adjust our working capital within our industry’s pricing cycles, so in the early days we opted to go with debtor finance,” Mr Gerrard said.
“As an importer of steel we have large working capital requirements, and have to maintain sufficient inventory to meet customers’ demands and allow for long import lead times. Debtor finance helped us in our early rapid growth phase, assisted us when the market contracted after the GFC, and in recent years, as profitability and cashflow improved, has allowed us flexibility in our working capital decisions.
The business, with a turnover of $194 million, is towards the large end of the scale for a traditional debtor finance client, but this style of finance suited them because of their high debt ratio and desire for flexibility.
Debtor finance is becoming a funding option under consideration by a growing number of larger businesses interested in flexible funding that stays in tune with their growth strategies.
While Steelforce has been using debtor finance for a decade, they are relatively new to Scottish Pacific, having come on board as a client in 2016.
“We have been very happy with the people and the process. Our previous provider had a very rigid system, we have been delighted with Scottish Pacific as they have been far more flexible,” Mr Gerrard said.
“Regular drawdowns with ScotPac are simple, prompt and allow us to meet our supplier payments while minimising the interest we have owing to our financier. The flexibility to draw what we need, when we need it – without having to give advance notice – cuts down on the red tape, but more importantly minimises our drawdowns, saving us interest costs.
“I would recommend debtor finance to any companies with higher gearing and large working capital requirements,” he said.
With Scottish Pacific, Steelforce has a debtor finance facility as well as an export finance facility against their international debtors.
This allows Steelforce to maximise funds available for settlement and to meet the ongoing cashflow requirements of the business.
“Reporting requirements with Scottish Pacific are less than what we have been used to in our previous debtor finance facility and their checking of our collateral is far less time consuming,” Mr Gerrard said.
“Because we upload our invoice data to the ScotPac portal in our own time, they have the details to review and verify our collateral without the need for formal reporting and intrusive audits.
“The transition in terms of lending and back-office requirements was very easy, and their online platform is simple to use.
“ScotPac has a great team – they really tried to understand our working capital requirements and the sophistication of our own internal systems. I’ve been pleasantly surprised that the staff are always available. I’m not used to having that ease of access from a financial institution!”
Mr Gerrard said Steelforce had some reservations about whether customers would mistakenly think they were in trouble because they were using debtor finance (not the case with modern day debtor finance, which funds more than 4500 successful Australian businesses).
“Despite these minor reservations it has worked out well, and has all been pretty seamless in the end. Customer service is crucial for us, and our biggest concern was any disruption that our loyal customers would face when we changed funders,” he said.
“ScotPac has been responsible and professional throughout the process and all customers had to do was change a bank account name, no other action was required.”
Steelforce is a major Australian-owned steel manufacturer, trader and distribution group established in 2000, with more than 2,500 customers throughout Australia and New Zealand. They have 250 employees (150 in Australia, 100 at their steel pipe and tube mill in China). With a group turnover of $194m, and branches in Brisbane, Sydney, Melbourne and Perth, Steelforce have captured a significant share of the Australian steel market, with a diverse range of products including structural steel, pipe & tube and merchant bar. www.steelforce.com.au