Real business story

Reengineering cash flow helped engineering firm bridge income periods

Evaluating the way it handled invoices meant a North West of England-based engineering business could bridge income periods, even out seasonality and achieve next day payment.
Fortis Engineering Services had clients with traditionally long payment terms, which made things difficult when cash became tight

Coronavirus hit Fortis Engineering Services, an engineering firm in Birkenhead, hard with the closure of its workshop and many key orders hanging in the balance as customers worried about their own order books and financial status.

Formed in 2015, Fortis is a family business that has grown rapidly in a short period of time. “We’re currently working with many of the largest manufacturing and processing companies in the UK and Northern Ireland, specialising in design, manufacture and site installation of a wide range of products in mild steel, stainless steel, aluminium and plastic, including pipe work, bespoke fabrication and maintenance,” explained managing director Craig Fletcher.

Remembering the crunch

“Things came to a near immediate stop, with a very stop/start approach to business coming in,” he added. Along with many other business leaders, Craig and his senior managers were forced to look at their cash flow and rethink how it worked because of coronavirus and lockdown.

“It meant our company finances which had been looking so stable started to imbalance quickly,” he remembered. “We also tend to work with much larger businesses which often insist on long payment terms. Dealing with the impact to our income was one of the biggest immediate challenges we faced, from a business perspective.”

The items that Fortis produces form part of much bigger projects. As a result, when these larger developments and orders were put on hold, modified, downgraded or simply cancelled completely due to lockdown it had a major effect on the cash flow and balance sheet of Fortis. “Like most businesses, through no fault of our own, we had invoices being paid later and later – which put a massive strain on working capital,” said Craig. “Luckily we have a close relationship with our accountancy advisor and were able to take a practical look at our finances.”

Getting outside help

Talking to the company accountants as soon as coronavirus began to affect the business and its cash flow and then keeping in regular communication has been essential. Fortis uses a local firm the team there helped Craig to rethink and adapt his cash flow. Using the accountant’s expertise, as well as its experience from helping other clients, was extremely useful for the senior management team at Fortis as they navigated this strange new economic landscape.

“We had lots of chats with our accountant to start with,” explained Craig. “We were also in the lucky position that we’d already been open to ways of managing our business finances through new approaches, even ahead of coronavirus, so we know what we could trust and how they could help us to manage the rocky period.”

On the advice of its accountants, Fortis chose a service called AREX Markets – which lets the company finance its issued invoices. This means that it doesn’t have to wait for slow payments from some of its business partners to keep the cash flowing into the company stable.

“We tap into this as needed – either just financing one invoice or a number of them, so we have better control of when money comes back into the business,” said Craig.  “This meant we could tactically inject more money into the business over lockdown, without having to demand it from our customers or insisting on contract terms which could hurt relationships with other companies in the longer term. Everyone was facing challenges; this was a manageable and flexible way for us to overcome ours without spreading the financial pain around.”

He has had some bad experiences with invoice financing in the past and was quite against using it as an option for working capital, but AREX has worked for Fortis, reducing its payment terms to next day.

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Cash flow options available

Craig’s accountant said there are now more innovative solutions than ever available now to assist with cash flow management. Most have focused on the speed but then compromised on the quality of service or the cost, he added. That situation has now changed, he said, with services such as AREX that tick both boxes.

Other assistance with cash flow has included tax credits and, thanks to the research and development that was being carried out in the day-to-day running of the business because it produces bespoke steelwork, Fortis qualified for research and development (R&D) relief too. Checking for less obvious grants and tax relief is an effective way to improve cash flow for many smaller businesses.

New technology has helped with forecasting. “Financing invoices like this means we can bridge lower income periods if needed, and plan ahead,” said Craig. “On a wider level, it evens out any seasonality in our work which can help us to work more effectively on future projects and focus on getting new business in rather than chasing down completed payments.”

He advised SMEs to be open minded about the ability of new technology to help with cash flow. “Doors are opening for small businesses to manage their operations all the time thanks to new technology developments. It’s important to stay open to new opportunities.”

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Lessons learnt

If you're not keeping a close eye on your cash flow then issues can grow quickly and not give you enough time to respond.

Like Fortis did with its accountants, getting the help of an individual or business that is an expert in a particular field makes a lot of sense.

Fortis now has what it believes to be a better way of invoicing clients and balancing cash flow having had coronavirus slightly force its hand.