Calculate Working Capital

If a company takes all of its short-term assets (e.g. cash in the bank, receivables invoices, stock, etc) and pays all its short-term liabilities (e.g. suppliers, staff, etc) the remaining balance is their working capital position.  If the working capital position is positive, it is more than likely that the company is adequately capitalised and is self sufficient.  If however, the working capital position is negative, then the company needs to make up the difference by borrowing money or using some other source of working capital.  To calculate the working capital of a business, simply subtract its Current Liabilities from its Current Assets.

Working Capital = Current Assets – Current Liabilities

Knowing the working capital of a business will help to avoid unnecessary financial strain on the company.  Companies with insufficient working capital will invariably delay payments to suppliers, fail to pay staff salaries, delay tax payments and may ultimately lead to business failure and/or closure.   A useful measurement of the financial health of a business is its working capital ratio.  In a financially stable business, the working capital ratio will be above 2.

Working Capital Ratio = Current Assets / Current Liabilities

For example, a company with current assets of 100,000 and current liabilities of 40,000 has working capital of 60,000 and its working capital ratio is 2.5. Working capital ratios below 2 are an indication that there may be a potential financial problem.  A company with a working capital ratios below 2 needs to address the issue swiftly by borrowing money or using some other source of working capital.

Finding your Current Assets & Current Liabilities
Go to your accounts system and print your Balance Sheet, or ask your accountant for a recent Balance Sheet. Current Assets is a standard heading on most Balance Sheets. There may be a Current Liabilities heading and if not, there should be a heading: Creditors – amount falling due within one year and this is your Current Liabilities.

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• Five Numbers Small Business Owners Should Know
• How growing your profits may shrink your bank account balance!

Low Cost Capital

2013-Q4 ETR Briefing

How to use risk to your advantage

As explained in the previous article “It’s all about Risk…” you’ll now understand that larger organisations get preferential treatment from banks.  That’s the status quo and isn’t likely to change any time soon.  So what can you do to improve the banks perception of your business, so that you achieve ‘next best’ status?

The answer is to make sure you present your business as the ‘next best’ lowest possible risk.  This means you have to remove all possible negative ‘what if’ scenarios, wherever you can. What if these top two customers cancel their business with you? What if your cost of supplies increases unexpectedly?  What if a senior member of staff leaves? What if demand in your market declines suddenly?  And so on…

The more you think about all the risks that undermines the integrity and viability of your business, then you’re thinking like a banker.  Banks don’t like risk.  If you have given sufficient thought to the removal or reaction to risk, then you’re making it easier for them to lend to you.

It’s all about Risk

Once you understand risk, then you’ll begin to understand banks and how banking works.  Banks, investors, shareholders, managers, financial markets, brokers and other investment/lending professionals all learn about risk.  That’s not to say they necessarily understand risk in all its guises, but they must understand the principal that high risk is bad risk.

Think of it like parenting. Does a responsible parent leave a young child with the wild teenager next door, or do they leave the child with a mature, responsible adult? If you were a bank, who would you rather lend money to: an established, well managed, large company or the young start-up business (notice how inverting this speaks volumes: ‘up-start’)?

As a bank manager, if you are paid the same salary for lending to large companies as you were for lending to the up-starts (sorry, start-up), but were only promoted when the loan was repaid, who would you lend too?

Unless you’re being obstinate, the answer’s simple: the established, well managed, large company is less risky than the young start-up.  So they get the money first (and in most cases, at much lower cost too). Only after the large corporates market is satisfied, will banks look to the micro-medium sized, more risky market.

Low risk, high volume lending is more efficient and ‘safer’ than almost every type of other riskier lending to the micro-medium sized business.  That’s a simple fact of banking and isn’t likely to change any time soon.  So don’t get angry with your bank, if you were in their shoes, you’d probably use the same principal: low risk

Related articles

• Alternative Banking Channels Will Not Eliminate Bank Branches

50+ Retail Investors

Today the Exchange received funds from it’s fiftieth Retail Investor.  Since the first date of trading on 4 July of his Year (see article: First RSA/RPA Trade Executed), achieving 50 Retail Investors demonstrates a strong appetite amongst the investment community for strong, short term cash-equivalents such as ETR….

2013-Q3 ETR Briefing

Membership, Fees & Charges

IMPORTANT:- Some links in this article will only be accessible to authorised Members that have logged into the Exchange Trade Centre

Credebt Exchange® aims to be clear and transparent on the how it deducts charges (i.e. fees and commissions) from payments to any Member account. Before examining any deductions from a Member account, the Originator should log in to their account and view the Important Information items listed on the Exchange Trade Centre |
Dash Board (access to the Exchange Trade Centre is restricted to Members only) The information provided here is required reading.

There is also additional information in all of the articles in the Credebt Exchange® Tips & Help public section of this web site.   If any aspect of what is documented is not clear, Originators are invited to submit questions to Support using the Support & Customer Care Form.  Questions submitted using this form are regularly added to the Frequently Asked Questions, or FAQ, section of this web site.

Combining the Frequently Asked Questions, the articles contained in this section, the Credebt Exchange® Tips & Help and the Exchange Trade Centre | Dash Board with the documentation sent to all Originator Members, should provide a comprehensive understanding of the service.  Originators and all Members are encouraged to communicate their views to the Customer Care Team.

The most efficient way to communicate with Credebt Exchange® is by using the Support & Customer Care Form.  All submissions are responded to within 24-72 hours.

Exchange Fees & Charges

IMPORTANT:- Some links in this article will only be accessible to authorised Members that have logged into the Exchange Trade Centre

In accordance with the Credebt Exchange® Master Agreement sub section 6.13: “The Account Bank will draw any fees and/or commissions that the Member owes to Credebt Exchange® from the relevant Member Account. Credebt Exchange will provide the Member with an electronic invoice of such fees to the Member.” Sub section 6.13 also states: “In the event that a Member does not pay all amounts owed to Credebt Exchange, Credebt Exchange shall have the right to set-off any amounts then owed by the Member to Credebt Exchange against any amounts then or thereafter due to the Member and/or Credebt Exchange shall have the right to deduct any outstanding amounts due to Credebt Exchange from any Collections in respect of a Traded ETR, or from the Member Account, in respect of that Member.”

Fees are liable for VAT and electronic invoices are issued for each charge that may include a:

• Arrangement Fee – one-time setup charge for arranging Membership as indicted on the RSA Offer
• Debtors Ratings Fee – €11.75 charge for checking each Debtor’s credit rating when requesting an RSA Offer
• Digital Certificate Fee – annual digital certificate charge as indicted on the RSA Offer
• Membership Fee – monthly charge for Exchange Membership as indicted on the RSA Offer
• Posting Fee – discretionary charge per posted ETR as indicted on the RSA Offer
• Collection Charges – discretionary charge for providing credit management and/or debt collection services

Fees are charged on the first ETR sales transaction conducted by the Originator each month. In the absence of any sale of ETR in any month, in accordance with the Credebt Exchange® Master Agreement, fees may be deducted from ETR Settlement or Reserve payments. To view specific RSA Offer(s) and invoices for all fees charged on a Member account, login to the Exchange Trade Centre | Dash Board and use the My Reports link on the left side of the Exchange Trade Centre | Dash Board.

All ETR trading is subject to the Discount and Commissions specified in the RSA Offer. The total Discount is easily calculated as explained in the Calculate the Cost of Funds article. Neither the Discount nor the Commissions are liable for VAT and no invoice is required because these are an integral part of the Purchase Price and the Reserve calculations. These are automatically deducted from transaction payments and may include a:

• Processing Commission – deducted from the Purchase Price, Reserve and other payments due
• Trade Commission – deducted from every payment transferred to the Originator
• Over Allocation Commission – discretionary surcharge for substantial underutilisation of allocated funds

Add New User

IMPORTANT:- Some links in this article will only be accessible to authorised Members that have logged into the Exchange Trade Centre

In many instances there is more than one user in an Originator organisation that requires access to the Exchange Trade Centre. To add a new Debtor, use the Add new User interface that is accessed directly from the Originator Dashboard using the yellow ‘Add new User’ menu item from the left side menu: My Organisation -> Add new User.

When this form is submitted, the new user receives an email inviting them to complete a simple form and submit it. Once the request is approved, the user will receive a second email to complete the process. Once completed, they too will have access to the Exchange Trade Centre.

IMPORTANT:- The new use must complete both forms using the same web same browser, otherwise their digital certificate will not work and they will not be able to access the Exchange Trade Centre.