Recovering import duty and insuring debts of a wholesaler
Our client was a group of shoe wholesalers set up in the seventies. They had two companies in the UK, one trading as a ‘back to back’ wholesaler, selling (for example) 10,000 of an exclusive design to Asda, and the other company buying in stock and selling to a wide range of smaller retailers as a traditional wholesaler.
Overpayment of duty
Our FD discovered that the company, which had been importing from a buying agent in the Far East, had been overpaying their duty. In conjunction with HMRC and other experts, a full recovery of this was achieved, generating over £70,000.
We set up a reporting system that included monthly management accounts (within three weeks), monthly order reports (within 5 days) and weekly order reporting summaries, all with commentaries. This allowed the company to accurately see its sales and margin over the next few months – an invaluable tool when the economic downturn struck, as the company could easily see its likely trading position and could adjust its level of overhead accordingly.
Set up Hong Kong company
Our client had been trading through a Hong Kong company for its direct (FOB) business. We had wide experience of setting up and managing companies in the Far East and arranged an audit and a modus operandi for future trading. We also set up a shipping office, and administration office in Hong Kong to deal with this line of business. Direct FOB business had been £1.5m per annum at the outset of our involvement; it is now £8m.
Change of business
The general wholesale company (selling to smaller retailers) had struggled for success for some time. Our FD and the CEO took a hard look at this company and decided to close it, transferring the profitable element of the business to its sister company. The company owed its sister company over £1m, and we extricated it from the group without causing serious damage to the group or its credit rating. The company was wound down over a year and the eventual loss was entirely manageable.
Cash management in the wholesale sector is vital. Major retailers, such as Tesco, have payment terms of 90 days, and Far East sources need paying on delivery to the port. There is clearly a major cash requirement, and with margins being relatively modest, the cash required is many times larger than the value of the balance sheet.
Confidential invoice discounting (CID) was negotiated with HSBC, as was debt insurance for all sales from the Far East. This allowed our client to continue to trade with Stylo plc, and the company was the only creditor to have debt insurance in February 2008 when Stylo went into administration – the claim of over $400,000 was paid in full.
There are always new business challenges – for example, the new Stylo (Barratts Priceless Ltd) is trading successfully – but it is difficult to raise money to buy stock for the business. We looked at new insurance and funding possibilities to make trading with this company a possibility, and produce an additional, fully funded and insured £300,000 contribution from the turnover it could generate.
We are not just accountants, we are directors trained to assist the board in developing new areas of business. Clients achieve results that pay our fees several times over.