What do you do when you're next contract
requires a fast delivery commitment and your cash is tied up in receivables?
How do you finance more people, equipment
and supplies when your credit line is fully extended?
To give you a better idea of how
some companies are taking advantage of the ability to sell their receivables in order to
grow their business, we have described just a few circumstances below.
Any company selling products to
department stores like Wal-Mart, J.C. Penny, The Bay and Canadian Tire are subjected to
high demands for operational quality. These customers have the ability to dictate exactly
how much of your product is to arrive when, and how long until you will be paid.. Often,
your delivery requirement is narrowed down to a specific time on a specific day.
However, success with one
department store often brings about another order for a second store. As can happen, 2
days after the first sale which has exhausted your cash flow with a 70% production cost,
30% profit level and 60 days payment term, a second order arrives, with a 30 day delivery
requirement. Again, there is a 70% production cost and 30% profit level and 60 day payment
term. However, the credit line at the bank is "maxed", and the suppliers from
the first order need their money before releasing more of the product you need to produce
the second order.
By selling the receivables from
the first order, you receive 80% of the total outstanding money immediately, give up a
small portion of the 30% profit, pay off the suppliers, receive more product and fulfill
the second order on time. Thus enabling you to make the full 30% profit on the second
order, while solidifying relations with 2 clients instead of just one.
Personnel Agencies send out
people to various companies on a temporary basis for both short term and long term
contracts. Every 2 weeks these people expect to be paid by the Agency for the time they
have worked. However, the Agency may not receive it's money from their clients for 30 days
after the date the temporary employee has submitted their time card. Potentially, the
employees receive their money on the Friday, and the Agency sends out their invoices to
the clients on the following Monday.
This means the cash flow
available to pay the employees is devalued by 50% to 66% depending on the payment cycles.
The outstanding receivables can be divided by as many as 3 pay periods for the temporary
employees. Since the prime assets of the Agency are the working skills of the temporary
employees, the bank doesn't view this as hard core assets, and consequently provide only a
minimal credit line.
Selling the receivables as soon
as they are invoiced provides the Agency with 80% of their outstanding money immediately
in order to pay the temporary employees on the next pay cycle, without the need to exhaust
the credit line, or dangerously impact the cash flow. Done on an ongoing basis, this can
actually operate as an excellent substitute for utilizing a credit line, and possibly even
save money since the cost of factoring is only on the amount of time the money is being
used.
People who have exclusive
representation rights on certain products are always looking to increase their sales.
Occasionally the opportunity arises for them to do nothing more than purchase from a
source, and sell to a client without handling the product.
The problem occurs when that
great sale opportunity involves product worth $100,000, with a $30,000 profit, but the
line of credit with the supplier is only $10,000 and the line of credit at the bank is
only $10,000.
In this circumstance, you might
take advantage of the ability of Fleet Street to lend out their credit to guarantee
payment to your supplier, allowing immediate delivery to your client. Once the delivery is
accepted by your client, Fleet Street will pay the invoice on any terms that have been
established. You save the order without the hassles of hunting up extra credit, make a
handsome profit, increase your reputation with the supplier and demonstrate to the
marketplace your ability to manage the large orders.
Exercise more control over your
business destiny. When you have a growth opportunity at hand, but your capital is tied up
in receivables, give Fleet Street a call at 416-929-9272, or send an , and make the sensible financing choice that
will give you the freedom to take full advantage of your success.
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