Not long ago I was contacted by a company that had been unsuccessful in acquiring a new Operating Line of Credit from its bank in Toronto, Canada. The company is in the Import Business.
The company imports goods from China and has been experiencing strong growth over the last year which lead them to outgrow their current Operations Financing and their current Financial Institution would not increase their limit of $50K.
As you may know, the typical terms when dealing with China are 30% payment with the order and the 70% balance before they are shipped.
The sales for the company are $1.5 million per year with typical days sales outstanding of 45 days, which is quite common, and in many industries considered quite good. The average amount in Accounts Receivable is $200,000 so you can see the $50,000 Line of Credit was of little use to them.
In their industry, it is expected that the goods that are ordered by their customers are to be shipped within 7 days which required the Importer to carry inventory as their source of goods was in China.
As you can understand, the owners tied up their personal assets to get personal loans to aid in the cash flow crunch so they would have sufficient inventory to operate.
My office set the Importer up with a new Operating Line of Credit using their Accounts Receivable as security in a Factoring facility.
With an advance rate of 85% against the $200,000 open invoices, the company now has $170,000 available to them which allowed them to order sufficient inventory to support their growth, pay off the bank Line of Credit and pay off the personal loans they had taken to support the business.
As if this were not enough, due to the fact their sales are growing, the Operation Funds availability grows as their sales do. The more Accounts Receivable, the higher their available funds are to replenish stock. - 16890
The company imports goods from China and has been experiencing strong growth over the last year which lead them to outgrow their current Operations Financing and their current Financial Institution would not increase their limit of $50K.
As you may know, the typical terms when dealing with China are 30% payment with the order and the 70% balance before they are shipped.
The sales for the company are $1.5 million per year with typical days sales outstanding of 45 days, which is quite common, and in many industries considered quite good. The average amount in Accounts Receivable is $200,000 so you can see the $50,000 Line of Credit was of little use to them.
In their industry, it is expected that the goods that are ordered by their customers are to be shipped within 7 days which required the Importer to carry inventory as their source of goods was in China.
As you can understand, the owners tied up their personal assets to get personal loans to aid in the cash flow crunch so they would have sufficient inventory to operate.
My office set the Importer up with a new Operating Line of Credit using their Accounts Receivable as security in a Factoring facility.
With an advance rate of 85% against the $200,000 open invoices, the company now has $170,000 available to them which allowed them to order sufficient inventory to support their growth, pay off the bank Line of Credit and pay off the personal loans they had taken to support the business.
As if this were not enough, due to the fact their sales are growing, the Operation Funds availability grows as their sales do. The more Accounts Receivable, the higher their available funds are to replenish stock. - 16890
About the Author:
Wade Henderson - very Professional - 15 yrs in the Business Finance Field - reputation for getting the deal done. IMMFinancial.com factoring services accounts receivable collections
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