Invoice and Accounts Receivable Factoring and Financing

Example Scenarios of Factoring Situations

In an economic environment where traditional financing options are limited, we partner with companies who are forward looking and have the opportunity to grow but have financial constraints.  Example scenarios where factoring can be helpful are presented below:  

Scenario #1 – funding new growth opportunity

Dave runs a small oil field trucking company where he continually does work for a couple of mid-sized oil and gas companies.   He has an opportunity to take on another good sized client to grow his business but knows he won’t be able to pay his bills and make payroll if he takes it on.  Why?  Because he typically gets paid in 45-90 days for the work he has done but has to pay his employees every two weeks in addition to his ongoing day to day costs plus the costs of getting another truck into his fleet.  By factoring his outstanding receivables Dave secures the necessary cash to be able to take on this exciting new client and grow his business all while being current on his payments. 

The impact to Dave’s monthly profitability is outlined in the financial statements below: 

Net result - by factoring and taking on this new client Dave’s company will increase its annual bottom line profit by $86,000, a 37% increase in total company profit for the year.  

Scenario #2 – funding increased payroll

John runs a landscaping company and has taken on a couple of corporate building landscaping jobs recently.  To be able to take this work on he purchased some additional equipment and hired extra labourers to meet the growing demand of his business from the profits of his business to date.  John has payroll due next week but with the costs of purchasing the new equipment taking their toll he will not have adequate funds left to make payroll.  John turns to factoring some of his invoices to be able to fund his payroll and continue to grow his business. 

Scenario #3 – funding new lines of equipment / inventory

A distribution company serving the oil and gas and construction industries has recently added a couple of new products to their inventory at the request of their customers.  Their existing banking facility was fully utilized and their accounts receivable were growing rapidly resulting in a cash flow crunch.  By factoring their growing receivables the company was able to alleviate their cash flow challenges while continuing to grow their business into new product lines. 

Scenario #4 – funding start up working capital needs

A group of seasoned executes from a staffing agency wanted to start up their own staffing firm.  They had a couple of close relationships with major companies who used staffing firms regularly and told the group that they would hire employees from their newly formed firm when they got up and running.  After starting up their business and spending their investment capital in the company on start-up costs the company was financially constrained as they had to pay their ongoing costs and their employees every payroll cycle but their clients who were well established companies didn’t pay for 45-to-90 days.  The group had approached a couple of banks to help fund their business but because of their lack of history and a track record they were unable to secure any traditional financing.  As an alternative, they turned to factoring their growing accounts receivable in their successful start-up to ensure they were current on their bills and were able to pay their growing employee pool on time. 

Scenario #5 – factoring instead of bringing on a new business partner

Sam runs a successful oilfield rental company providing a variety of rental equipment to companies all over western Canada.  Sam was recently asked to provide some additional equipment to one of his best clients and didn’t want to say “No” but he didn’t currently have the equipment in his inventory.  Sam was already run off his feet with his thriving business and was contemplating bringing on a new employee or partner to help service his clients given the success he was experiencing. 

Sam had a friend who had great experience in this industry and who had shown interest in becoming a partner but wanted too large of a stake in the company for the investment he would be making.  By factoring some of his receivables Sam was able to bring in the money he needed to purchase the equipment he needed for his client and also to pay a new employee he hired instead of bringing on a partner and giving up significant ownership in his business.  

Other Scenarios

Many other scenarios exist where factoring can be a feasible solution to solving cash flow challenges faced by small to medium sized companies.  Contact us for a free consultation to determine if your business is a good candidate for factoring and to see if we can help you out.