Excellent Financial Engineering in Action

Summary
When a mid-sized engineering firm lost its 60-day supplier terms, cashflow pressures threatened both operations and client relationships. Attempts to shorten customer terms met resistance, and the bank remained tied to property-backed overdrafts. With support from a finance advisor, the company turned to Lock Finance. An invoice finance facility released capital from receivables, cleared their overdraft, and freed the director’s property from security—while protecting client relationships and ensuring stability into 2025.

The Challenge: Supplier Terms Tighten, Cashflow Strains

For years, this engineering firm had relied on extended supplier terms of 60 days from its main steel suppliers. The arrangement provided breathing space to align incoming and outgoing payments. But when suppliers reduced terms to 30 days, the business faced a cashflow gap that threatened operations.

Post-COVID, revenues and profits had already been under pressure. To absorb the change, the firm attempted to shorten customer payment terms. But many clients—accustomed to 60-day terms—resisted. With every customer critical to survival, management could not risk losing business by pushing harder.

The company needed a new funding model that would allow it to adapt to supplier demands without jeopardising client relationships.

The Bank’s Limitations - Collateral Above All

Like many engineering firms, the business had significant receivables but limited liquid assets. Their bank, focused on property security, was unwilling to extend working capital facilities beyond the value of the director’s home. This left the company over-reliant on a small overdraft, secured against residential property, with little flexibility for growth.

The structural mismatch was clear: banks look to tangible security, while the firm’s real strength lay in its receivables and contracts.

The Advisor’s Intervention

The company sought advice from its commercial finance advisor. Though unfamiliar with Lock Finance, the advisor consulted a business associate who recommended exploring invoice finance as a solution. This external perspective reframed the challenge as a timing issue rather than a viability problem.

The Solution: Invoice Finance Facility That Freed Cashflow and Assets

Lock Finance approved an Invoice Finance Facility, releasing up to 80% of receivables. The structure provided several unexpected advantages:

• Clearing the bank overdraft and replacing it with a scalable facility
• Freeing the director’s residential property from bank security requirements
• Providing sufficient funding to maintain 60-day terms for clients where needed, without sacrificing revenue or relationships
• Offering flexibility to manage seasonal cashflow fluctuations
  
  

The owner described the outcome as “better than expected”—a facility that not only stabilised operations but also improved financial independence.

The Outcome

Stability, Flexibility, and Growth.

With the facility in place, the business achieved:

• Stable cashflow, even with shorter supplier terms
• The freedom to preserve critical client relationships by maintaining flexible payment terms
• Release from reliance on personal property as security
• A funding base that scaled with receivables, aligning finance with operational performance
  
  

“We expected to close a gap. What we gained was freedom—from overdraft limits, from property security, and from the risk of losing clients.”
— Managing Director

Lessons for Engineering Firms

Supplier terms can shift quickly, and customers may not always adapt. For engineering firms, invoice finance offers a practical alternative to bank overdrafts, providing scalable working capital based on receivables rather than collateral.

The result is a stronger cashflow position, greater independence, and the freedom to balance client relationships with supplier obligations.

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