Invoice Factoring Case Studies
Established company develops improved technology: A technology company changed direction and developed a new, easier to use version of an existing product. It then reworked its business plan and brought in a new CEO.
After a year of losses and the recall of a bank loan, the company was short of cash and unable to secure another replacement bank loan or secure angel funding. However, orders were up, the product’s sales cycle was shrinking and growth indicators were all positive.
Creative Capital Associates factored the company’s accounts receivables to increase cash flow, allowing the company to strengthen vendor relationships and concentrate on sales instead of collections. Today the company is highly profitable and attracting private funding for a new growth cycle.
Computer component supplier runs into cash flow pinch: A supplier of high-end memory chips imports the chips and resells them to a variety of customers across the U.S. Their expertise at forward-looking purchases of exactly the right chips for an evolving market has lead to significant growth.
But it wasn’t until they received funding from a factoring company that they received the kind of support and funding that enabled them to realize the company’s true potential. As a growing company, the restricted access to working capital provided by their limited bank line was making it difficult to always take advantage of volume order discounts. A flexible invoice factoring arrangement replaced the line of credit and provided the solution that significantly increased the company’s ability to operate with a strong profit margin.
With financing directly linked to sales, the company was able to operate at a level that they could not have achieved by working only with their bank.
Company downsizing but with a need to finance retooling: A manufacturing company wanted to change its business model to focus entirely on one aspect of its capacity. Its customers promised to support the change with orders, while management believed that the company would save operating costs, increase margins and gain sales by downsizing to this niche market.
However, the move required the financing of new equipment that would squeeze the company’s cash reserves. Invoice factoring was the answer. The company was able to successfully take immediate advantage of this new opportunity.
A company has customer’s with strong credit ratings but needs cash to fund expanding sales: A small solar panel design and manufacturing company had little capital, but it had well established customers with strong credit ratings. Although the company was profitable, the company’s owner was suffering the stress of always being on the brink of insolvency. The company began factoring receivables and that stress was relieved. But then the unexpected happened; the company’s highly specialized factory foreman fell ill and production slowed.
CCA in their funding capacity helped manage credit, receivables aging, and collections, allowing the owner to spend more time on the factory floor, getting production back up until the foreman was able to return.
With CCA’s help, the company has grown and is completing the acquisition of a company in its vertical; a move that will more than triple its growth. CCA has been asked to factor the newly formed combined companies.
The Factoring Solution: When the vice president of a Reston high-tech firm arrived at his home office after a Las Vegas trade show, he was exuberant. The three-day show had been a smashing success, and he was looking forward to developing a solid roster of new clients from the product orders he’d received. But fulfilling these new orders meant more supplies needed to be purchased, employees would be working overtime, and shipping and handling costs were about to skyrocket.
The vice president actually had a dilemma on his hands despite his Vegas success. Instead of launching into a new level of sales, he would need to spend the next few weeks looking for capitalization while holding off expectant customers.
The vice president turned to a little-known capitalization vehicle for help. Unable to borrow from a bank, he went to Creative Capital Associates for the capital he needed. Using the completed Vegas orders as collateral, he quickly secured the cash needed to fulfill customer expectations.
And as it turned out, fulfilling the Vegas orders led to the company being able to establish itself with a banking institution to avoid ever being short of capital again.
Call center company growing “too fast”: A call center company was handling customer service calls for a software company whose software sales were growing exponentially. The call center had a solid customer but need to quickly hire and train new phone staff. They also had another substantial contract pending that required them to go out and hire new personnel. As a result, they would have to increase their payroll and cash flow requirements significantly, even before payment on the services rendered were due.
In what is a classic example of the need for additional operational cash flow, CCA entered into an invoice factoring arrangement with the call center company and was quickly able to provide the necessary capital to meet all payroll demands.
Supplier to biotech needs growth capital: A fast growing lab supply company services three successful biotech companies who expect extended credit terms and are often slow payers. The supply company wants to accept growing orders from these three venture backed customers, but due to the frequently slow payment associated with these accounts, it is likely that they will “out of pocket” all their expenses for extended periods before collecting on enough accounts receivables to continue funding the growth.
An innovative asset based funding program was developed enabling the supply company to move though its cash flow crisis. It is now operating on its own with positive cash flow. And the company is secure in the knowledge that when the opportunity to move through another growth spurt arises, it will be able to strike while the iron is hot and capitalize on the new growth opportunity by factoring its receivables.
Manufacturing company wants to design and build specialize equipment for strong customer: A highly specialized manufacturer of equipment used by the pharmaceuticals sector has credit-worthy customers that need sophisticated new equipment built to exacting standards. The company hires an engineer with the knowledge and experience to manage the projects.
In the long run they knew these projects would be very profitable. And delivering on them would build the company’s standing in the pharmaceuticals equipment manufacturing sector. But they did not have the cash on hand for the new hire and other expenses that would be incurred by taking on these new projects.
CCA designed a creative invoice discounting arrangement that allowed the company to complete the projects. This has led to expansion centered on this newly developed type of specialized equipment.
GPS distributer struggling with supplier’s COD demands: An GPS equipment supply company grew rapidly in recent years with its success based on a first-class stock and re-order system for its wholesale and retail customers.
The company has been factoring invoices for several years to keep up with capital demands resulting from the fast growth. Under the agreement, the company was factoring 90% of their invoices upon presentation, so they were effectively paid at the moment they incurred an expense. This was particularly important since they normally had to pay for goods when they arrive at the warehouse COD.
The invoice factoring arrangement generated a number of crucial benefits, including:
|The ability to buy more stock and diversify product range.|
|More efficient day-to-day operations creating best utilization of employees, allowing them to dedicate themselves to cost productive activities.|
|Less stressful work environment allowing the company to advance their business without worrying about capital requirements.|
High-end plastics manufacturer carves itself an attractive and valuable niche in its regional market
A manufacturer of highly UV-resistant plastics for high-stress outdoor applications was on the expansion trail. It was considering two options for funding its exponential growth.
As a privately-owned business, their first option was equity investment, but they did not want to dilute individual holdings in the company and suffer loss of control to the investors. Their second option was debt financing. They chose invoice factoring to supply the capital they needed to grow.
The immediate payments provided by the factoring deal against invoices issued was attractive. The business owners weighed bottom line cost of funds between equity and debt options and came to the conclusion that the debt scenario was by far more beneficial.
Once the cost-effective factoring solution was in place it allowed the manufacturer to make additional acquisitions and eventually dominate its niche. The manufacturer grew and became more profitable thanks to the bridge solution provided by the accounts receivable financing.
The cost of the factoring structure was more than offset by reduced administrative burden that would be incurred by appointing an employee to run the credit control and collection functions.
New entrepreneurial company with strong management needs growth capital
Two successful executives from two large companies decided to quit the corporate world and form a new entrepreneurial company to import and resell specialized computer networking hardware.
The company obtained initial purchase orders from several small market ISP’s/hosting companies, but the import costs exceeded the principals’ liquidity. Purchase order financing was arranged and Letters of Credit were posted for the company. Purchase order financing was repaid through factoring of invoices created upon delivery of the hardware to the customers.
The company has become very profitable and is currently financing its own growth.
CD-ROM Business Card Developer/Supplier needs growth capital but cannot secure bank loan
A company that develops and supplies large numbers of digital business cards, which include video and the client company’s website among other features, wanted to take advantage of the growing demand they were seeing as a result of outsourcing their direct marketing to a skilled online marketing firm.
As a young business they were unable to secure a bank loan. An employee searched online for “business finance” and subsequently learned about accounts receivable financing.
They set up a receivable facility which provided the capital for them to service the swelling volume of orders. Within the factoring engagement, Creative Capital Associates did credit checks on new customers making orders over $2,000, giving the company a new layer of credit management. Having this expert second opinion gives the company a sense of comfort, particularly when a new customer is from out of state.
They were able to honor requests for a rapid turnaround without any delay or worry. This flexibility gave the company a real competitive advantage in being able to meet demands. With CCA’s assistance, the company was able to mitigate their risk exposure.