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The Need? 
To Reduce Present Cost of Factoring.
A client was paying a local competitor with
several offices throughout the nation a discount of 1% for each ten days
(or part thereof) an invoice was outstanding and receiving a stated
80% advance with the reverse balance being settled every other week,
which meant that the effective advance rate was approximately
75%. Volume was approximately $1,000,000 per month and the
receivables turned in an average of 42 days.
Therefore, the client was paying an average of 5%
discount or a total of $600,000 per year on sales of approximately
$12,000,000. The average cash employed by the client was 1,050,000
((($1,000,000 ÷ 30) x 42) x 75%).
The Solution?
Our Lead Factor's Services
Our network's program was a factor's commission of
.8%, interest on the cash employed of prime + 3%, a true 80% advance and
the reserve was settled daily. This resulted in a total cost to
the client of 1.95% (compared to 5%) discount on the same sales of
$12,000,000 or $234,000 per year for the use of $1,120,000 ([($1,000,000
÷ 30) x 42] x 80%) throughout the year.
Our factor reduced the actual factoring
costs by $366,000 or 61% and increased cash available during the
six weeks by $70,000 (1,120,000 - $1,050,000) and continued to increase
cash flow by $436,000. After two years with our factor, this
client was able to graduate into conventional financing because of the
increased profits and equity.
NOTE: The examples of clients receiving
substantial savings as a result of moving from a higher cost factor to
our Factoring Network are too numerous to detail here; however as a
general rule, we can save them a substantial amount of money.
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The Need?
To Have an Alternative to Bank Financing.
A trucking company in the southeast doing
approximately $20,000,000 in annual revenues had lost money for the last
two years due to the owner having to deal with family health problems
and his consequent inability to devote his full attention to his
business which he had run profitably for over 15 years. The owner
came to our lead network factor at a time that he was able to start
devoting 100% of his time to his business, but at a time when equipment
financing companies were threatening foreclosure on his trucks and
trailers and the bank had given notice that they were withdrawing his
credit line. He needed to replace his banking relationship and
file Chapter 11 at the same time in order to prevent foreclosure upon
his equipment and buy the necessary time to reorganize his business.
The Solution?
Our Lead Factor's Services
Our lead factor paid off his bank line and took an
assignment of the bank's lien position. They also went to
the bankruptcy court with him with a joint motion for emergency
temporary postposition financing which was subsequently converted to
permanent financing. The client's plan of reorganization was
confirmed and after a couple of years with our lead factor, the client
was able to re-establish bank financing.
NOTE: The need for an alternative to
bank financing can arise in several ways including situations where bank
financing is available but not in an amount sufficient to sustain the
client's needs, where the bank is withdrawing their credit line, and
where bank financing is simply not available for a variety of reasons.
Sometimes the solution is to work with an existing bank in a
split-financing arrangement which we have done on several occasions.
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The Need?
To Take Advantage of Term and/or Quantity Discounts.
An east Texas manufacturer with sales of
approximately $500,000 per month with a receivables turn of 40 days and
average outstanding receivables of $600,000 had a $250,000 bank line at
prime +2%. With a line of $500,000 the client would be able to
take advantage of raw material supplier discounts of 5% for cash and
another 5% for increased quantities ordered. His cost of raw
materials purchased was approximately 50% of his sales. The bank
would not increase his line.
The Solution?
Our Lead Factor's Services
Our lead factor paid off the bank, took an
assignment of their lien position, and provided the client with
factoring at a discount of 1% of his factored sales and prime + 4% on
the cash employed with an 80% advance for a total cost of approximately
2% of his factored sales.
Such a program allowed for a $530,000 line of
credit which more than met his needs. For every $1 of raw materials
purchased with the additional cash from our lead factor, he was
able to save 10˘ for a cost of 4˘ (2% x $2 sales price) with a net
savings of 6˘.
In real terms, the client was able to realize
gross savings of $25,000 (10% x $250,000 raw materials purchased) a
month for a cost of $8,000 (2% x $500,000 sales - $2,000 interest he
would have paid the bank). His net income in profit was $17,000
per month or $204,000 per year. Had the bank been willing to
increase his line to $500,000 he would have been paying an additional
$2,000 per month interest on the increased line.
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The Need
To Increase Cash Flow to Sustain Growth.
A client who is in the temporary employment
industry with offices in New York came to our lead factor for a
solution. His business was successful; however, success bred more
success until the demand for his services outstripped his ability to pay
the workers on a weekly basis while he generated more and more
receivables which paid in an average of 32 days. Because
accounts receivable were his largest asset, he was unable to obtain
sufficient bank financing to sustain his growth. Consequently, he
was was forced to turn down profitable new business.
The Solution?
Our Lead Factor's Services
With a line of credit from our lead factor based
upon an advance of 80% of his outstanding receivables, the client was
able to turn his money weekly rather than every four to five weeks.
With the increased cash flow, he was able to more than triple the amount
of workers he sent out on a weekly basis and because he was able to do
so without adding any significant fixed costs, the incremental profits
of the new business were very significant.
Today, this client continues to sustain his growth
as he acquires small temporary employment companies throughout the
country with our financial help.
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The Need?
To Bring Taxes Current.
A Midwest trucking company had the unfortunate
experience of having an IRS audit which resulted in a reclassification
of "independent contractors" to "employees" for
purposes of federal withholding taxes. Although the prospect
believed himself to be current with his taxes, after the audit he was
faced with a $500,000 tax liability going back over the last three
years.
He was financed by a bank who immediately withdrew
his line of credit upon learning of the tax lien. The prospect was
faced with the following alternatives: 1) close down his business,
2) file Chapter 11 and stretch out the tax payments over six years, or
3) find a lender/factor who was experienced in dealing with IRS
subordinations.
He chose to pursue alternative 3 and became a
client of our lead factor.
The Solution?
Our Lead Factor's Services
Our lead factor paid off his bank line and took an
assignment of the bank's lien position. Because the bank was
still within the 45 day protective period provided by the Internal
Revenue Code for secured lenders, our lead factor was able to negotiate
with the IRS from a position of holding the first lien on the accounts
receivable.
The alternatives proposed to the IRS by the client
and our lead factor were to 1) shut down the business immediately, 2)
file Chapter 11, or 3) obtain subordination from the IRS with a payout
of the tax arrearage. The IRS chose to work with our lead factor
and the client under alternative 3.
Out of the funds that otherwise would have been
paid to the client by us, a portion was remitted directly to the IRS in
payment of delinquent taxes. Further, as a condition of the
repayment plan, the IRS needed assurance that the client's current taxes
would not become delinquent.
Again, our lead factor carved out of money
otherwise due to the client a sufficient amount to pay taxes directly to
the IRS. At this point, the $500,000 liability has been paid down
to less than $100,000, more recent taxes are current, the client is
growing, the IRS is happy, and our lead factor was happy to provide a
solution to this client's need.
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The Need?
To Acquire Equipment Necessary to Reduce Costs.
An Alabama manufacturer of plastic products had
the opportunity to purchase a unique piece of equipment for a cash price
that was substantially below its market value if he was able to move
within a ten day period. This company was self-funded, relatively
current on all its bills, but was marginally profitable and not
bankable.
The Solution?
Our Lead Factor's Services
With our lead factor's receivables funding
program, he was able to convert a portion of his receivables to cash
with which to purchase the equipment resulting in a reduction in his
payroll, increased productivity, and increased profitability.
Through his increased profitability he was able to eliminate the need
for factoring within about a year and a half.
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The Need?
To Reorganize, Whether In or Out of Bankruptcy.
A Dallas manufacturer who had operated profitably
as an industry leader for approximately 20 years was faced with the
situation whereby over the last several years profits were rapidly
declining and market share was rapidly deteriorating due to the old line
management's inability and unwillingness to change with the times.
They eventually lost their bank line and instead
started stretching out vendors and suppliers to the point where it was
very difficult to obtain inventory to meet the production demands they
had. Because of substantial losses over the last several years,
their equity became negative and they were eventually contemplating a
Chapter 11 reorganization. Prior to doing so they hired a
turnaround specialist.
The Solution?
Our Lead Factor's Services
Among other things done to reorganize this company
outside of bankruptcy, the turnaround specialist entered into a
factoring agreement with our lead factor contingent upon his
ability to negotiate a substantial reduction in the trade dept of this
prospective client. With this contingent commitment in hand,
he was then able to set down at the bargaining table with all the
creditors and lay out for them what would happen in bankruptcy court as
opposed to how they would come out better in an out-of-court
reorganization. The creditors opted for the latter alternative.
The creditors realized more by staying out of
court, and the company was able to move forward without the stigma of
bankruptcy. Our lead factor's financing together with other major
changes made by the specialist resulted in the company regaining its
industry lead and growing out of its need for factoring and into
conventional financing.
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The Need?
To Make Strategic Acquisitions.
A major publicly held Texas manufacturing company
owned a trucking subsidiary. Because this subsidiary was not
the core business, it did not receive the professional management
necessary to make it a profitable unit. The parent decided to sell
the sub, but after the acquisition cost the new owners needed operating
capital. The company had formerly not needed outside
financing because of the ability of its parent to finance it internally.
Because of no history under the new management and
ownership it was impossible to obtain bank financing. After
acquiring this particular company it was management's goal to grow
through acquisition of several smaller truck lines throughout the south
and southwest. As each new acquisition would be made, additional
demands for cash flow would arise.
The Solution?
Our Lead Factor's Services
Our lead factor's accounts receivable financing
was an integral part of the original acquisition from the publicly held
company. As the client grew through acquisitions of smaller truck
lines, our lead factor has and continues to this day to supply
additional accounts receivable financing to meet the cash flow demands
of an aggressively growing company. With each acquisition, the
company is able to improve their operating performance because of the
centralization of management skills.
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