Working capital and overdrafts
Profitable, and no money in the bank.
Overdrafts, trade and stock lines, and the cash-flow facilities that cover the gap between money going out and money coming in. Profit and cash are different things, and a business can be genuinely profitable and still run out of money in the month the two fall furthest apart.
Where this usually comes up
- Profitable on paper, and short of cash in the same quarter
- Buying stock or paying wages long before the revenue behind them arrives
- Seasonal, and needing the limit to be there in the month it is needed
- Running an overdraft that was sized years ago against a business that has changed
How it is assessed
What a credit team is actually deciding.
Any lender will describe the product. This is the part that decides whether your version of it gets written, and on what terms.
Lenders read overdraft behaviour like a cardiogram
A swinging balance is a healthy cash cycle: drawn when stock is bought and wages fall due, back in credit when customers pay. A flat one is a structural problem showing through the account. That pattern is visible in the statements before anyone reads the accounts, which is why the conversation about it is better had by you than about you.
The right limit is calculated, not rounded
The number is the actual gap between paying suppliers and staff and getting paid, and it is measurable from your own accounts. Too low and the facility fails in the month it exists for. Too high and you pay line fees for headroom you never use, and invite a question about why you asked for it.
Match the facility to the shape of the need
A gap that opens and closes suits an overdraft. A gap created by invoicing on terms suits invoice finance, which scales with the book rather than needing a review each time you grow. Something permanent, an asset or a loss, is not a working capital need at all, and funding it with working capital money is exactly how a business ends up with hardcore debt.
An overdraft that never comes back to credit has stopped being an overdraft.
It has become term debt wearing the wrong structure, usually more expensive than the term facility it should be, and it usually means something permanent is being funded with money designed for timing gaps. Sometimes the fix is a restructure onto the right instrument. Sometimes it is a problem a restructure would only postpone, and we will tell you which one we think it is.
What we do with it
The file gets built before it gets lodged.
We measure the gap from your own accounts rather than accepting the limit you already have, work out which instrument the need actually fits, and price the options on total cost rather than the headline rate. Where an existing facility is the wrong shape, the Debt Facility Review says so in writing and states what a restructure would do. Then we take the case to market, or hand you the file for your own banker.
Work it out yourself
Run the numbers before you speak to anyone.
Free, no sign-up, and nothing you type is sent anywhere. Including to us.
General information only. Indicative, not a credit assessment, and not an offer of finance. Lending decisions rest with the lender and depend on your circumstances and their criteria.
Common questions
Sized to the actual gap between paying your suppliers and staff and getting paid by your customers, not rounded to a number that sounds comfortable. That gap is measurable from your own accounts, and our working capital calculator does the arithmetic. A limit set too low fails you in the month it matters. One set too high costs you in line fees and gives a credit team a question you do not need.
It is worth taking seriously. An overdraft is designed to swing, drawn when stock is bought and wages fall due, back in credit when customers pay. One that sits drawn permanently has become term debt in the wrong structure, usually more expensive than the term facility it should be, and lenders read the pattern clearly. Sometimes the fix is a restructure, sometimes it is a genuine problem the restructure would only postpone. We will tell you which one we think it is.
Match the facility to the shape of the need. A timing gap that opens and closes suits an overdraft. A gap created by invoicing on terms suits invoice finance, which grows with the book instead of needing a review. Something permanent, an asset or a loss, is not a working capital problem at all and funding it with working capital money is how businesses end up with hardcore debt. The Debt Facility Review works out which of the three you actually have.
Yes, and it is common. Unsecured and cash-flow-backed facilities exist, invoice finance is secured by the debtor book rather than by real estate, and trade lines sit against the stock. They price higher than property-backed money because the security is weaker, which is exactly why the earnings case has to be built properly. That is the part we do.
Two ways this can work.
Referred to us for finance? You are in the right place either way. Either we arrange it, or we prepare the file for whoever does.
Have us arrange the finance
We build the analysis, write the submission and take it to the lenders who will actually do the deal, across 40+ of them. One team from the first set of figures to settlement, and one team holding the covenants after it.
Start a finance enquiryAlready have a broker or a banker you trust?
Keep them. We will build the file to the standard a credit team expects and work directly with whoever lodges it. Same models, same documents, same standards, and we do not take the lodgement on that engagement.
See the finance documentsWant a straight read on your deal?
Book a free call with Nick. Bring the numbers you have, and we will tell you the right service level and the fixed fee. No obligation.