Distiller powers growth through Invoice Financing
Funding on tap is driving a Tasmanian spirits producer’s national and overseas expansion.
Distillers closely guard their recipes, but one spirits producer is happy to let the industry in on something he believes shouldn’t be a secret – the recipe for successfully funding a growing liquor business.
Strait Brands founder Philip Ridyard believes many producers have no idea about the funding that has allowed his premium Tasmanian gin and vodka business to take on national and overseas distribution.
"Strait Brands has been backed by Invoice Finance since 2016 and we’ve found it’s a financial solution that enables us to pursue our growth strategy without being crippled by excise duty commitments," Mr Ridyard says.
"When our non-bank lender came on board at the end of 2016, the positive impact was immediate. Without them we would have to use over half our sales revenue just to pay the monthly excise duty, which would make it impossible to manage cash flow effectively," he says.
Strait Brands’ finance partner is a specialist working capital funder with expertise in providing Invoice Finance to SMEs from a range of industries including larger brewers, micro-breweries and distilleries.
Funding to cope with excise duty commitments
There’s been strong growth in the number of Australian whisky and gin producers, with gin, in particular, enjoying a renaissance as a bartenders’ favourite, with its range of flavours, infusions and botanicals.
This popularity, combined with Strait Brands’ new production and packaging facility, high volume capability and new national distribution arrangements, puts them in the box seat to expand at home and abroad.
It also creates growing pains when considering excise duty which must be paid weekly, based on turnover.
"The excise issue is why many manufacturers in the drinks industry can’t distribute nationally, even if they had the ability to manufacture in higher volume. And I’d say many distillers probably aren’t aware of what a business-changing solution Invoice Finance could be for them," Mr Ridyard says.
"We could not even contemplate undertaking national distribution without Invoice Finance, unless an investor walked in and gave us $5 million."
Strait Brands’ growth plans
Strait Brands was Australia’s first premium vodka and gin producer, with its first production in 2006. They now offer a range of five gins and five vodkas, bottling at the source of their super-soft spring water in northern Tasmania and using an abundance of locally grown fruit and nuts.
Like most business journeys, it has not been just an upwards trajectory, Philip Ridyard says.
"It’s been a bit of a roller coaster ride, but we have never wavered from our original core strategy".
Early expansion plans were initially successful, including forays into China and Vietnam at the time of the Beijing Olympics, but the Global Financial Crisis impacted their distributors.
Now Strait Brands has done the hard yards in terms of locking in fruit, nuts and bottle procurement and local and international distribution channels.
Strait Brands recently completed construction of a new $500,000 production and packaging facility at York Town, 50km north of Launceston. The facility, on the same property as its crucial source of natural spring water, can package 1.25 million bottles of vodka and gin, delivering the capabilities to target national distribution and exports.
It remains one of only a handful of Tasmanian spirits producers with a multi-head bottling line at their own facilities (most others bottle by hand).
The new facility will have a tasting room and a training facility to allow bartenders from around the country to learn about Strait Brands’ products.
Phase two of the production facility’s expansion plans consists of construction of a $3 million project increasing production to 3800 bottles an hour to fulfil orders as Strait exports into the US, UK and South East Asia.
Now, Strait Brands is working towards turnover of $32m by EOFY 2022.
How Invoice Finance works
The main issue that affects the cash flow of a spirits business is excise duty per bottle of spirits. As the business expands its national distribution through a major wholesaler and a distributor group, it will have to make weekly excise payments.
"Invoice Finance is important to our business now, but with national distribution it is critical for us. We will be paying millions of dollars a week in excise duty," Mr Ridyard says.
"Years before we started using Invoice Finance, it got to the point where we couldn't put more stock into Sydney because we couldn't afford the effect on cash flow of excise duty.
He said within the business there is some regret that they didn't use Invoice Finance sooner, as it would have allowed Strait Brands to grow substantially – and sustainably – much earlier.
Invoice Finance, also known as debtor finance or invoice factoring, has been used by thousands of Australian businesses for more than three decades. It is basically a line of credit linked to and secured by outstanding accounts receivable.
It can be used by any business that supplies products or services to other businesses on standard trade credit terms. It may involve confidential invoice discounting (for larger, more sophisticated businesses with a dedicated finance department) or full management of accounts receivables (which allows smaller enterprises to focus on growing their businesses rather than chasing outstanding invoices).
Invoice Finance and cash flow for distillers
Mr Ridyard said a significant outlay on Strait Brands' new proprietary bottle could also cause extra strain on their working capital, so having Invoice Finance in place to smooth out cash flow bumps offers extra peace of mind.
"It can be a long time from paying for the large bottle order to being able to invoice our customers – and a further wait to get paid. In the meantime, we have expenses we're accountable for.
"For us, the real advantage of Invoice Finance is that Strait Brands can offer preferential terms to customers, which means they get a good wholesale price so they can offer their own customers a premium Australian product.
"We can give them 30-day terms or more, knowing that once the invoice is issued and delivery confirmed, I can access 80% of its value from our lender, so I'm only waiting 30 or so days for the remaining 20% (minus fees).
He said as Strait Brands starts targeting more individual bars, restaurants and hotels around Australia, customers will deal directly with Strait Brands.
"Wholesalers, in the main, have seven-day terms, and because of Invoice Finance we can offer longer terms so some, like our biggest single customer in Melbourne, may prefer to deal directly with us.
"At busy times of year in particular, bottle shops can have a nightmare if they order more stock than they can sell – but because we have the Invoice Finance facility we can offer good terms and bottle shops can stockpile with reserves, knowing they don't have to pay us immediately."
"So this style of funding is not just helping us, but also our bottle shop customers."
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