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Alex N Fernandez
Building an international business is not an easy proposition. Just ask Bob Severs, managing director of Severs Technical Systems/HMI Products Australia.
Bob is in the business of providing specialised components to the mining and construction industries, and the worldwide boom in the resources sector has opened up myriad opportunities for growth.
Severs Technical Systems/HMI Products Australia source and provide products to some of the world’s biggest markets, particularly Australia and the United States for mining, and the United Arab Emirates for construction.
The company sources and supplies specialised components for gripping high tensile steel strands used for reinforcing concrete in the construction industry, and similar products used in roof support systems in the mining industry. STS/HMI is based in Regent’s Park, NSW and employs 25 people on-site.
But finding the right finance to assist the business in funding its growth has been one of Bob’s biggest challenges.
“For an organisation that has 60% of its sales represented by exports, we require a banking facility that gives us the ability to meet our international funding needs and provides cash flow to allow for growth,” said Bob.
A business like Severs Technical Systems/HMI requires a comprehensive debtor finance facility, both domestically and for exporting.
In simple terms, debtor finance is a funding process offered by a financial institution that enables a business to receive immediate payment for sales made on credit terms of 30, 60 or even up to 180 days. Debtor finance is also known as ‘invoice discounting’.
Most businesses have to offer credit terms in order to secure orders from customers. These invoices can take up to 60 days or longer to be paid and this delay reduces cash flow and restricts the growth of the business.
That’s where debtor finance can help a business like Bob’s. By having a financial institution step in and provide a line of credit for the payment of customer invoices, Bob is provided with ongoing working capital to fund the growth of his business.
The need for a better debtor finance facility brought Bob to HSBC three years ago. Prior to this, Severs Technical Services/HMI had a factoring arrangement with another financial institution, but their ability to do business was hindered in two ways.
Firstly, the institution was not prepared to finance their exports.
“Because the goods were shipped directly from their supplier in China to our overseas debtors, they saw this as a risk,” said Bob.
HSBC recognised that, while this was riskier than if the goods were being shipped by the customer themselves, the shipping documents came directly to Bob once the supplier shipped, and he was able to control the release of the goods by controlling the shipping documents.
Secondly, Bob’s previous financial institution placed a cap on the proportion of finance they would provide for any one domestic debtor.
“40% of our sales are domestic, and of this, much of it is concentrated in one or two large debtors. The cap meant that a large portion of these domestic debtors was not funded, and therefore our business growth was inhibited.
“HSBC removed the restrictions that were placed upon us in the past, and provided a genuine debtor finance facility that gave us the freedom to grow our business.
“Recently, HSBC extended the credit limit on one of our customers for a major contract worth $5 million in turnover a year. While the deal is still to be finalised, we couldn’t have reached this point without the knowledge that if we do get the contract we will have the funds available to finance it.
“This goes to the heart of the benefit HSBC has brought our business.
“Our mission is to provide the benefits of Asian manufacturing with the ease of local sourcing. With HSBC’s debtor finance facility, we can behave like a local supplier because we can finance the material while it’s being shipped,” said Bob.
The international nature of HSBC’s business means that it has a competitive advantage in deals such as this. HSBC is a genuine provider of export debtor finance and its expertise in international trade means it understands how this business works.
HSBC’s history was built on international trade; the HSBC Group evolved from The Hongkong and Shanghai Banking Corporation, which was founded in 1865 in Hong Kong in order to finance the growing trade between China, Europe and the US.
Bob extols the virtues of working with a global bank: “Discussions are underway to extend some of the bank’s services to other companies within our group, particularly in the United States. This is another benefit of working with an organisation with the global reach of HSBC.”
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