BY ROWAN BENN
Entrepreneurial business owners have discovered a new finance product, which has enabled them to make more cost effective capital investments. The benefit to their cash flow is having a deep ripple effect through their businesses. We talked to two businesses that represent a number of innovative managers who have cottoned on to the growing trend in specialist import finance. Tesia Supermarkets and Durogoods share their stories and reveal how they have found significant buying efficiencies by purchasing assets abroad with the support of NIC Bank and Chase Bank finance.
Cash flow is king
Cash flow is the lifeblood of all businesses and closely guarded by finance officers for good reason. When capital investments need to be made, there is typically deep frustration that whilst an overseas purchase could be bought for up to half the local price, these purchases need to be paid for in full upfront before being shipped or paid for with a letter of credit. Neither option is particularly palatable. Large cash purchases always raise the challenge of cash flow efficiency, not to mention the concern of supplier credibility when trading overseas. The letter of credit requires hefty amounts of paperwork and administration. A recent finance innovation now allows business owners to take unsecured asset finance loans to purchase their imports allowing them to benefit from global pricing variations without stifling their cash flow. But, the partnership between NIC Bank and Chase Bank and MHH International have now extended their import finance products to include medium sized commercial purchases too.
Tesia Supermarkets is a renowned brand in western Kenya with 4 stores and 350 employees. They have evolved from selling fast moving consumer goods to also featuring luxury items in their stores. The company has endured its challenges and with careful strategic positioning and societal goodwill they have experienced substantial growth, particularly in the last 10 years. They are about to open their fifth store, which requires a host of complex purchasing choices by Patrick Maina, their procurement manager.
Cash or Finance purchasing?
Purchasing goods with cash or finance is a well-aired debate. For Patrick, it is a straightforward choice. “We prefer asset financing to cash when sourcing for equipment,” he says. “Using cash would tie up our working capital and strain our operations. There are always savings to be made when buying equipment abroad than locally, for obvious reasons. The main disadvantage with buying abroad is that you would need cash. Specialist import finance is a great product. It is more or less asset finance, but you get to source abroad.”
Durogoods was founded in 2010 by Mungai Karanja with the sole purpose of becoming one of the best cold chain transporters in Kenya. “We started with one truck in 2011 and very quickly added another two trucks within six months and another three in the next year. News of our professional service delivery spread very quickly within the horticulture community causing us to expand our fleet,” says Mr Karanja. “Initially I did not want to take out asset finance, but this proved to be a very valuable tool to achieve our business goals. We did not have the cash flow to purchase our initial vehicle but specialist import finance gave us the ability to attain this vehicle.”
Prioritising Productivity and Pricing
Whilst these two businesses hail from different industries, they share very similar priorities when it comes to their investment decisions. Both cite supplier reputation as critical when sourcing from overseas. A machine or commercial vehicle must be high quality and able to earn its keep from day one for many years to come. Patrick Maina prioritises sourcing high quality equipment, which is competitively priced.
“Producers’ reputation is important, that is, they produce high quality equipment guaranteed to serve for a long-time. Supermarkets rely on customer service to maintain clientele, hence reliable equipment are very crucial for success. Price is also a key issue for us, as we try to keep our costs to a minimum. We thus prefer to import from manufacturers abroad than local dealers, as we know we’ll have great savings,” Mungai says, adding that he focuses on productivity, price and ease of purchase. “We consider the type of equipment, its capacity, cost, how easy it will be to acquire. These are key for us as we want to get a product that fits our customers’ needs so we can maximize on the revenue earning from the asset. So it’s key we get the right piece of equipment every time and at the right price.”
Both NIC and Chase Bank stipulate that their supply partner MHH International must supply all their import finance loans. The partnership allows customers to source products from a worldwide network with the reassurance their supplier has the solid reputation you would expect from a partner of your bank.
Increased choice, lower costs
Specialist import finance is a powerful product because purchasing investments at a globally competitive price has a ripple effect on cash efficiencies, which can be felt deeply through the business. Patrick illustrates this succinctly.
“Buying abroad allowed us to save more than 50% of what we would have paid locally. This is a lot of money especially if the equipment in question is of high value. The extra savings allowed us to fund our expansion as well as provide our customers with better service,” he says.
The effect of buying overseas was far reaching for Durogoods too. Mungai explains that import finance appealed to him because “the options out there for vehicles are a lot wider and more cost effective than purchasing locally. We were able to choose specific vehicles that fit our needs and that also stood out and gave us a whole new level of professionalism not offered in Kenya.”
Bright futures from sound investments
When asked if it is a choice they will repeat, there is a resounding yes from both companies. “The experience,” Mungai says, “exceeded my expectation as it was really easy to work with MHH International and with my Chase Bank to secure the necessary financing. We paid off our first truck ahead of schedule and that was a great feeling and we look forward to doing the same with the rest. We will most definitely be buying with specialist import finance again. This is a great tool for us and we will use it as often as we can.”
The future looks bright to Tesia Supermarkets too. Patrick and his team are focussed on the launch of their new store in the next few months, which they are expecting to bring them at least 20% growth.
A global mindset is no longer only relevant to multi-national companies. Smart buyers already know that there are many purchasing efficiencies available. The introduction of import finance has simply opened up the global market place to many Kenyan companies for whom it has been out of reach. No matter what size a business is, sizeable savings and cash flow efficiencies are a powerful pair, which can have a deep impact on a business plan.
Writer is marketing director MHH International Ltd