Is there sufficient liquidity?
Liquidity is crucial for a business. Without cash, no business. If there is an acquisition or a merger, it is therefore evident to look at the amount of cash flow present and whether it is sufficient to meet short-term liabilities and operational costs or whether money still needs to be added. An acquisition or merger contract therefore stipulates that a certain amount of cash flow must be present.
Working capital financing solutions
Traditionally, working capital financing for mergers and acquisitions has been sought at a bank in the form of a current account facility. However, we see in the market and in our practice that more and more, especially growing companies, are switching to financing through factoring.
Traditional factoring
In traditional factoring, up to as much as 90% can be financed where the maximum provision at banks is often 20% lower. In this form of factoring, the debtor portfolio is taken over by an external financier or factoring company.
New form of factoring: off-balance financing
What is different from the traditional form of factoring is that also the invoices are sold. The accounts receivable position is taken off the balance sheet, reducing the balance sheet total and increasing solvency if equity remains the same.
More advantages of this form of factoring are:
- A company's liquidity ratios and credit rating are strengthened and the money can be used for other purposes;
- As a result of the improved solvency ratio, companies can obtain more favourable financing terms;
- The customer/debtor is not informed about the sale and also just continues to pay on the customer's account.
However, it is important to mention that the auditor must give prior approval for the construction.
The financing conditions of a factoring contract are often a lot more flexible than with banks as the company and debtors are well monitored. For instance, there are less strict requirements on the amount of equity and foreign debtors can often be included in the advance without any problems. A company can only grow really fast if the financing grows with the company.
Are you curious to know more information on working capital and how to calculate it? Or the possibilities of working capital financing in mergers and acquisitions? Then contact us at info@xolv.nl or 073 - 820 02 95. Our specialists will be happy to talk to you.
