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For fast growing start-up firms, invoice discounting can often help finance the crucial early years of expansion when other forms of finance may not. Andrew Chilvers reports.

When Warrington-based Premium Appliance Brands Ltd [PABL] - a kitchen supplier business, acquired Catalyst Home Products for £1 million earlier this year – the deal crowned an extraordinary year for company directors Guy Weaver and Peter Brazier.

The acquisition came only weeks after PABL was named as one of the 100 fastest growing private companies in the UK. Within the first year of trading in 2003, the business recorded £3 million and this has increased to £20.8 million for 2006.

Moreover, a new board of directors has recently been created with Weaver as chief executive, combined with further strategic expansion. Also, with the support of the new company structure, Brazier predicts that turnover will treble again within the next five years.

It’s an impressive beginning for the two entrepreneurs who risked re-mortgaging their homes to start the business back in 2002. Both had previously worked as sales and marketing directors in a firm that was bought out by a multinational, at which point they decided to set up on their own.

With seed capital generated by their property assets, Weaver and Brazier then looked around for funds to grow the business. The problem the partners faced was trying to access financing with no track record behind them and no assets other than their houses. They needed a funder that had faith in their business plan and they found it in independent invoice and asset-based financier, Venture Finance Group.

For Chris Hawes, managing director of Venture Structured Finance (VSF), a subsidiary of Venture, PABL is typical of the type of early stage business that utilises the invoice discounting instruments offered by VSF. As a start-up, PABL would not be an attractive investment for a bank or other high street lender. For Hawes, however, it fitted the mould with its ambitious business plan and solid management team.

“PABL is a fast growing successful company and because of that they need a lot of working capital to be able to fund the growing sales,” Hawes says. “Also, because the basis of their facilities is invoice discounting, that grows with their sales so they are not tied to a fixed overdraft, providing significant flexibility in terms of growth.”

Hawes likes the team at VSF team to maintain close relationships with their clients, helping to steer them through the early growth stages of the business. After this, they can advise on further strategic plans such as acquisitions, which is what happened with PABL.

“They [PABL] have carried on growing organically, which we’ve supported. Last year the company acquired another business – and we’re able to support that too,” Hawes said. “We encourage regular, detailed contact with clients, helping to develop strong, positive interactions that benefit both parties.

“Our client managers will only have a limited number of clients; it’s quite different to some of the big high street banks where the client managers are trying to look after 70 or so clients. In contrast, ours will look after 15-18, build that relationship and provide support in a quick, positive way when they need it.”

Going forward Hawes believes that PABL now has the right market niche and critical mass that will provide other opportunities to add value to the business “possibly through the acquisitions of other companies in the future”.

As companies such as PABL grow, VSF can provide further funding structures to fit with strategic plans, according to Hawes. As well as invoice discounting, the funder also provides asset-based finance against machinery, property and intangible assets such as brand values. “Beyond that we will provide cash flow loans that are not tied to pure value of collateral,” he said.

Hawes claimed the first four months of this year had been the busiest ever for VSF, with a larger volume of deals written than any time previously. Indeed, recent financial results confirm that the group is having a record year with pre-tax group profits of £14 million for 2006 – an increase of 23% year on year. This growth follows an industrious 12 months, which saw the company acquire City Invoice Finance, launch a trade finance service and integrate online factoring service, Venture Factors Direct, into the firm’s core services.

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