Name: Dreamtime Foods
Location: Victoria
Industry: Food Manufacturer
“Factoring gives us flexibility and security. One of the best things about that is that we have been able to establish strong relationships with our suppliers, because they know they will be paid.”
Rapid growth required flexible working capital solution
A boom in local and overseas demand has been both exciting and challenging for Dreamtime Foods, manufacturers of a range of unique Australian indigenous food products.
Founding directors Angus and Sarah McDonald were on one hand, thrilled with the overwhelming international interest in their unique fare, but knew the company’s cash flow as it stood could not support significant expansion.
To help redress the imbalances caused by rapid growth, along with concentrated purchasing periods (dictated by harvest periods of ingredients) and the late payment cycles of Dreamtime’s larger customers including its export customers, the company looked to factoring – a cash flow solution with which they had had prior experience.
Factoring provides a flexible source of finance by allowing businesses to unlock the funds tied up in unpaid invoices – leading to an immediate injection of cash.
With factoring, businesses send a copy of their invoices to Bibby who then converts up to 90 per cent of the unpaid invoices into cash within 24 hours. Businesses using Bibby factoring can stay in tune with account payment status online, and can draw down from their accelerated cash flow at rates competitive with banks. Once the debt has fully been collected by Bibby, the remaining 10 per cent, less a fee, is transferred from Bibby to the business.
The result is a flexible cash flow facility that is aligned with the business’ performance and growth.
“We are very comfortable with factoring as a cash flow solution. It allows us to grow within our means,” Angus said.
Angus and Sarah McDonald began their association with indigenous foods in 1986 and have been manufacturing and marketing their product to Australian and overseas markets since 1998.
Their new brand of chutneys, sauces, dressing and herbs - “Outback Spirit” – which retails in major supermarket chains Coles and Woolworths, as well as Sainsburys in the UK, has generated the company’s enormous growth.
In 2003-04, the company grew by 40 per cent. This year, 100 per cent growth is expected for the company, which consists of only 5 full time and 5 part time casual staff.
Angus McDonald said “The rate of growth we are experiencing is of course exciting, but at the same time, extremely challenging. When the range took off, we were growing faster than our capital base, which can create problems.”
A growth explosion can present enormous challenges in meeting production costs. An increased order from a customer the size of Coles Supermarkets, with over 480 stores, equates to an enormous amount of additional stock.
Furthermore, since indigenous produce is seasonal and must be harvested and stored at the peak time, Dreamtime Foods are required to purchase large quantities at certain times of the year to ensure they have sufficient ingredients for year round production. Suppliers need to be paid at the time even though the produce may be stored for months before production processes begin and any income is received.
In addition, payment cycles of big businesses such as Coles and Woolworths tend to stretch 30 days closer to 60 to fit in with their system of accounts. This presents numerous problems to smaller suppliers like Dreamtime Foods – especially during a time of growth when steady cash flow is crucial.
Factoring provided flexibility and security
Indigenous food products have only recently moved into mainstream markets, so uncertainty around the viability of the products meant that the more traditional banks were not interested in the concept and initially declined to offer Dreamtime Foods financial assistance.
Struggling to find support from major lenders, Angus McDonald looked further afield at a range of cash flow solutions, which led to Bibby Financial Services.
“From our first contact, Bibby set out to really understand our business, which is admittedly different to most,” she said.
“Factoring gives us flexibility and security. One of the best things about that is that we have been able to establish strong relationships with our suppliers, because they know they will be paid.”
“Bibby gives us fantastic service and great support. Their customer service standards are exceptional.
“What we particularly like about Bibby is the easy access we have to senior people who are able to make quick decisions. When things are moving as quickly as they are for us at the moment, this is crucial. We need to be able to seize any opportunity that comes our way,” Angus said.