Working capital pressure before lender discussion

Illustrative case note: This is a composite of common business situations. It does not describe a named client or disclose confidential information.

The situation

A growing business was experiencing sustained pressure on its working-capital facility. Sales had increased, but receivables were taking longer to convert into cash and inventory had risen to support larger orders. The bank limit was frequently close to full utilisation.

The immediate reaction was to request an enhancement. Before approaching the lender, however, the underlying need had to be measured more carefully.

What required review

• Monthly sales and collection trends
• Receivable ageing and customer concentration
• Inventory levels, ageing and slow-moving stock
• Creditor terms and the timing of supplier payments
• Existing drawing-power calculations and limit utilisation
• Short-term borrowing being used outside the normal operating cycle

The key question

Was the pressure caused by healthy growth, a temporary timing gap, weaker collection discipline or a structural mismatch between the operating cycle and the banking facility?

A higher limit would be useful only if it addressed a genuine and supportable working-capital gap. Otherwise, it could postpone attention to receivables, inventory or margins.

A better lender discussion

The business should approach the bank with reconciled financial information, a realistic monthly cash-flow forecast, an explanation of the operating cycle and evidence supporting the requested limit. The proposal should show how the additional facility will circulate through the business and be serviced.

How KSV adds value

KSV can help review the working-capital cycle, test the proposed requirement against projected sales and operating assumptions, organise the supporting information and evaluate the existing sanction terms before lender engagement.

The objective is not merely to ask for more funding. It is to present a clear, supportable requirement and identify any internal improvements that should accompany the banking request.