Why efficient settlement matters

By November 26, 2020Fine Wine Market

In the current economic climate, it’s more important than ever to get paid – or get wine – quickly. The faster that you can free up cash, the faster you can invest it in your next profitable opportunity.

Average settlement times on Liv-ex have fallen from an average of 60 days in 2014, to just 25 days in 2020. This means that the time between an order being placed, and both the buyer and seller having what they need (wine and payment respectively), has dropped by around 60%.

We’ve achieved this through a number of service improvements. Payment cycles are weekly. This means that you’ll get paid for your sales on Liv-ex in as little as one week of it being checked in our warehouse. Many members have also chosen to store wine in our London warehouse, meaning there’s no need to arrange delivery once it’s sold.

Perhaps the most important contributing factor during this time, though, has been the introduction of international collection and delivery services. For a flat per-case fee, we’ll collect from countries including Germany, Belgium, Switzerland. We’ll also deliver to the UK, Bordeaux, Beaune and Hong Kong. Next year, these services will be expanded further.

Turn stock faster

The low collection price  is useful on its own – but the big opportunity is in the time that it saves. Members in Europe have told us that before they started to use these services, they’d need to consolidate a number of orders before they could justify paying €150-200 to ship a pallet. This can take months – if indeed they decide to take advantage of the sale at all. The ability to ship single cases at a low price means that they don’t need to wait. The wine ships faster; they are paid faster. Rather than waiting months to reinvest, they wait weeks.

This is just one example of a faster cycle, but any member can take advantage of efficient settlement. And as cycle times speed up, profits can rise exponentially.

For example, a business that can afford to hold £1m in stock could make £400k gross profit by turning stock twice a year at a 20% margin. When cycle times halve – stock is turned four times per year – gross profit doubles to £800k. But efficient Liv-ex logistics processes, combined with efficiencies of scale, mean that overheads increase at far slower rate. A net profit of £50k in the first instance could easily rise to £300k in the second – a six-fold increase, just by reducing cycle times.

That’s why settlement times are important. The faster we work, the more profit you can make.

Learn more – Stay efficient after Brexit

From January, once the UK has left the single market, international trade will become more complex and costly. In a recent series of webinars we showed how Liv-ex will absorb these additional complexities for its members, meaning that they won’t have to drain precious resource on additional administration.