TAEFL finances production in China for UK company
Re-packaging the DTI as the Department of Business, Innovation and Skills was hailed by sceptics as no more than window–dressing by an incoming administration. But this most recent evolutionary step from the old Board of Trade recognises that innovation, along with skills development, is up there amongst the factors which influence the nation’s performance.
Innovation, of course, can appear at many levels. The development of Graphene – immensely strong single-layer graphite ‘sheets’– is set to have an impact on a broad spectrum of processes and technologies far into the future, and generate huge export earnings for the UK.
Game-changing innovations like the Nobel Prize-winning Graphene tend to overshadow more mundane though no less creative developments which are destined to benefit the sectors they serve. Take the case of air fresheners in motor vehicles. The plastic cells filled with colourless scented liquid hanging from rear-view mirrors have done a reasonable job since they were introduced half a century ago. But are they the best that can be achieved? What happens when they ‘expire’ or the liquid inside the modules escapes over the interior of the car, for example?
Improving the design of air fresheners
Two UK developers with successful business careers believed that they could do a better job in this high-volume freshener marketplace. Their solution involves ‘locking in’ the scent to the molecules of a moulded plastic material, and appears to tick all the boxes regarding cost, longevity of the scent and physical durability in the confines of a family car. The same process has other applications which the company has identified for future development.
After a personal investment by the inventors running into six figures over two years, the first product was ready to launch earlier this year. It was closely scrutinised by the retail community which had to be convinced that this really was a ‘better mousetrap’. If they were to believe that this was a new approach to a problem, then an order would follow and the concept could take off commercially.
An initial order by one of the major supermarkets was the sign that the investment had been justified. There remained the question of the working capital needed to fund the gap between accepting the order and being paid for delivering boxed products to the retailer’s distribution centres.
To keep the cost of manufacturing down, the developers had contracted with a Chinese company prepared to create the tooling for the injection moulding process involved and then use it to produce the pieces. For a new business, sourcing from the Far East normally involves paying 100% of the manufacturing and shipping costs up front. The supplier in this instance sought a much smaller percentage as a down payment, requiring the remainder just before the ship docked in Britain. And aware of the lengthy payment terms associated with supermarkets, the product’s developers had contracted with a UK factoring company to release funds against orders delivered.
Funding the shortfall in working capital
Even with this reduced demand for funding, there was still a shortfall. An introduction to the Trade & Export Finance group of companies enabled the innovators to meet that objective. The UK EXIM arm of TAEFL has recently agreed a limit of £50,000 to fund the purchase of the injection-moulded pieces, which are then packaged and delivered to the retailer. In a separate agreement between UK EXIM, the innovators and the factoring company, the funds advanced under the factoring contract against the invoice to the retailer are paid over to UK EXIM.
One frequent criticism of traditional business funding – where it is available to SMEs – is that it can take so long to arrange that the deal becomes unviable. TAEFL is able to demonstrate, as for this client, that it can provide the finance in under a week if the ‘paperwork’ is all in order (purchase invoices, credit checks, security for the finance, for example).
It is highly unlikely that Downing Street had innovative air fresheners in mind when the Trade Departments in Whitehall were being re-jigged. But there is a recognisable culture in which innovation can flourish. This includes substantial tax relief for qualifying development expenditure. The TAEFL team complements this activity by enabling original ideas supported by a sound business case to be carried through into commercial production. And maybe even help its clients pick up a Nobel Prize along the way.