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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.
If you have ever dealt with companies in China you know that their terms are generally 30% payment when you submit the order to them and the balance before they will ship.
The company was selling on average about $125,000 worth of goods per month, and with the Accounts Receivable sitting at about 45 days to collect, the $50,000 Operating Line of Credit was of little good to them. The average open Invoices were $200,000.
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.
Against the owners wishes, they had to use personal loans to cover the cash shortage so that they could operate and carry the required inventory.
My office set the Importer up with a new Operating Line of Credit using their Accounts Receivable as security in a Factoring facility.
Now the company has access to $170,000 for their operations which allowed the owners of the company to pay off the personal loans they had taken for operations, pay off the bank Line of Credit they had and still have sufficient funds to carry the required inventory to service their customers.
Because the new Funding Line was based on outstanding sales, the Line increased as the sales increased. So as sales grew, so did the availability of funds.
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.
If you have ever dealt with companies in China you know that their terms are generally 30% payment when you submit the order to them and the balance before they will ship.
The company was selling on average about $125,000 worth of goods per month, and with the Accounts Receivable sitting at about 45 days to collect, the $50,000 Operating Line of Credit was of little good to them. The average open Invoices were $200,000.
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.
Against the owners wishes, they had to use personal loans to cover the cash shortage so that they could operate and carry the required inventory.
My office set the Importer up with a new Operating Line of Credit using their Accounts Receivable as security in a Factoring facility.
Now the company has access to $170,000 for their operations which allowed the owners of the company to pay off the personal loans they had taken for operations, pay off the bank Line of Credit they had and still have sufficient funds to carry the required inventory to service their customers.
Because the new Funding Line was based on outstanding sales, the Line increased as the sales increased. So as sales grew, so did the availability of funds.
About the Author:
Wade Henderson - very Professional - 15 yrs in the Business Finance Field - reputation for getting the deal done. IMMFinancial.com jd factors invoice factor Get a totally unique version of this article from our article submission service
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