A Managed Exit is any exit that is controlled, monitored and facilitated in a way that causes the minimum of disruption but also ensures you get repaid in full.
As an Invoice Finance provider, you will always have Clients who, for whatever reason, no longer fit the profile of a client you wish to retain in the long term.
This can be for a variety of reasons including:
- Regular facility breaches.
- Debt Turn consistently high and/or growing.
- Regularly asking for overpayments and/or pre-payment percentage increases.
- Suspected Fresh Air Invoicing.
- Issues picked up in Audits.
- Issues picked up on Monthly reconciliations.
- Poor Collection performance.
- Loss of trust in the management team.
- Business is distressed.
When the relationship breaks down and the time has come for this client to leave you, it is essential that this is done in a controlled and managed way.
There are several possibilities as to what may be the eventual outcome, but under all scenarios your number 1 priority must be getting your capital back whilst, if possible, allowing the business to continue to trade.
The eventual outcome can vary and includes:
- An alternative funder takes over from you and repays you in full.
- The facility winds down over a period of time.
- Alternative cash is injected into business from a non-invoice finance provider, and you are repaid in full.
- A Collect out is implemented to recover your funds.
- The business is sold.
Throughout any of the above, providing you fully understand the true value of the ledger and control your funds in use position, you can react to any twist and turn in the road up to the point of repayment.
Once the Profile of the ledger and business processes, including the Order to Cash process, are fully understood and the buffer between your funds out and the real ledger value is maintained and improved it is easy to prepare fully for any eventual outcome.
Please see below some scenarios and how a Managed Exit strategy will assist:
1: Fresh Air Invoicing discovered or suspected
When fake or inflated transactions are discovered a lot of funders think immediately of appointing an Administrator and moving the ledger into collect out. This is often a mistake and can lead to a significant shortfall on the ledger and, dependant on the PG position, a loss or at least a long drawn out legal process to recover your Capital.
A suitable Managed exit strategy for this would be to monitor the ledger for a period of time, assessing and validating all new invoicing, whilst ensuring all fresh air is written off. This can be done whilst controlling the “Buffer” between the funds out position and the real ledger value and once you are comfortable that the numbers stack up again and there is enough headroom in the facility, you can look to either manage away where possible or move into collect out.
By taking your time and controlling the position there is a much higher likelihood of you recovering your Capital in full.
2: Client’s Debt Turn has grown to a high level
If a client has lost control of their debt turn, DSO, or whatever you wish to call it, this can often lead to you deciding they would be better off moving to another funder or at least that you won’t be funding them anymore. In their current position, they may not be an attractive prospect to an alternative provider until such time as things are improved.
A suitable Managed Exit strategy for this client would be to ensure they get the assistance they need to improve things quickly.
Once the business has been assisted in getting to grips with the reasons for this, be it lack of resource, poor resource or something more sinister, and the ledger profile has been greatly improved, it is easier to manage them away or collect in your funds should you need to.
3: Business is distressed and Insolvency is a possibility
If a business is distressed for whatever reason such as loss of a large Client, significant cashflow issues or a general dip in overall business, it is essential that the position is quickly assessed, and sensible solutions are suggested and implemented.
Controlling your funds in use versus the ledger value, maximising WIP opportunities and resolving all queries quickly are all required to ensure that, if the worst should happen, you are in the best possible position to recover your Capital in full.
There are a variety of potential outcomes in this scenario and the position can change daily so full disclosure of all issues will mean you can react quickly to the changes as and when they take place.
How can we help?
Credebt have many years’ experience in dealing with cases in all industries, and when you think you may need a Managed Exit Approach, we suggest you contact us immediately to get us to do a Free Debtor Collateral Review.
This can be done under the guise of a regular review, and because of our extensive experience, we know how to handle this sensitively and without causing unnecessary concern.
For all Cases where we have been engaged early in the process, except for when large frauds have been discovered, we have always made sure the Funder gets their capital back in full.
Feel free to contact us for a no obligation chat in total confidence, or arrange your Free Debtor Collateral Review to find out your Position.
Call us on 0845-6385256 or email firstname.lastname@example.org