Taylor Pershing is the CEO of a staffing company based in Charlotte that supplies contract personnel to hospitals. In order to cover payroll among his 50 employees, he’s turned to factoring for help. “We sometimes wait 30, 60, or 90 days to get paid” Pershing says. “Without factoring I’d need at least $500,000 in cash on hand or a similar-sized revolving credit line to meet payroll,” Pershing explains. “Factoring has really taken the stress out of pay day and allowed me to focus on growing the company.”
- In 2002, Caleb Denault started a janitorial commercial cleaning company in Birmingham, Alabama. When an opportunity arose to service a large hospital, Caleb needed to hire more employees but couldn’t obtain a loan from his bank. Caleb said, “I contacted a factoring company and the cash I got for my receivables enabled me to double my staff and keep the hospital job.” Seven years later, Caleb’s company services over 400,000 square feet of medical, retail and office properties and has annual revenues in excess of $10 million. Caleb still uses factoring as his main source of financing and explains, “The beauty of factoring is that I don’t give up equity in my company and I keep debt off my balance sheet.”
Susan Brown, who created the Boppy, a pillow used to aid breastfeeding moms and to give infants added support when sitting up, was selling her product in 100 specialty children’s stores by 1990. The business was hovering around $2 million in sales, but cash was running out, and Brown couldn’t secure loan form a traditional bank. Brown started using the services of a factoring agency, which immediately gave her 80 percent the revenue of her invoices, so she wouldn’t have to wait the typical 30 days for payment. The business inched along until acquiring its first major account in 1995. Today Boppy Co. generates $40 million in retail sales annually.
Chandler, Stephanie. “Entrepreneurial Survival Stories”. Entrepreneur
- Ben Davis, the president of a Colorado manufacturing company discovered the benefits of taking supplier discounts when he started his business ten years ago. “I’ve always made it a point to save on supplies when terms are offered” Ben explains, “but paying vendors early puts me in a vulnerable position if money isn’t coming in on time every month.” His solution to the cash flow dilemma? Accounts Receivable Factoring. “I use the money from factoring to restock supplies at a discount,” Ben says. “I can’t imagine going back to the days of worrying about when my customers will pay their invoices.” Ben’s business utilizes factoring to generate roughly $3 million in annual sales.
A $70,000 advance from a factoring firm helped Gary Delarosa’s San Diego based company install 40,000 square feet of flooring in a local grocery store. Gary explained, “I didn’t have the cash flow to float the materials and labor for a month and with my credit, a bank loan was out of the question.” Gary now plans on using factoring to finance additional work with the grocery chain.
- Fred Maddox started a plumbing fixtures company in his Texas garage 11 years ago and grew it into a $1.5million a year company. In 2007, a major plumbing supplier approached Fred to manufacture $35k per month in fixtures, but with the stipulation that Fred extend his terms to 60 days. Fred had a dilemma. He could turn away this business and rely on potential growth from his existing customers or take on the new account and risk a cash crunch. In the end, Fred decided that increasing his annual sales by 30% was worth the risk. Fred’s banker said the loan committee would take a month to make a decision so he contacted a factoring company and was approved in a week. “I was unfamiliar with factoring and reluctant to pay what seemed to be a high fee,” said Fred. “But after I calculated my profit margins on the new account, it was a no brainer.” A year later, the business achieved revenues of $2.7m and net profits of $957k.
Chris Hossel wanted his Phoenix based solar panel distribution company to expand its customer base and decrease its reliance on 1 or 2 large accounts. They began factoring their receivables to support this growth. Chris said, “The savings we incurred by downsizing our collections staff was more than the discount we paid to the factor.” The company became current with its trade payments and was able to meet its cash flow needs during rapid expansion. The company’s better payment of its bills resulted in a higher credit score, ultimately reducing its need for cash from the factoring arrangement.
- In 1997, James Steiner began manufacturing trunk-mounted bicycle racks and selling them to bicycle shops in the southeast. Factoring allowed James’ company to order supplies and fill new orders on demand instead of waiting 30 to 60 days for payment. 13 years later, James still uses factoring as his primary source of working capital. “I consider it cheap money considering I don’t give up any equity in my business.” James said. He goes on to say “I thought about getting a credit line from my bank but I didn’t want to deal with financial covenants and quarterly audits.”
A machine shop owned by Bob and Tammy Murphy produces engines for large gulf coast commercial fishing boats. Bob and Tammy explain, “In 2004 we sustained so much damage to our facilities from hurricane Ivan that we had to declare chapter 11 bankruptcy to reorganize.” But because the company performed work for credit worthy customers, it was able to use factoring to replace assets destroyed in the storm. Today, Bob and Tammy have built up cash reserves but still use factoring to fund very large projects.
- Cindy Shropshire’s company was awarded a government contract to provide day care for disadvantaged youth in north Georgia. She soon found out that the slow paying federal government could wreak havoc on her young company’s cash flow. “Being a start-up, we didn’t qualify for a traditional loan but factoring turned out to be a great option for us.” Cindy said. “Instead of waiting 60 days for payment, we sell our invoices up front to pay bills, order supplies and make payroll.” Cindy’s company generates about $20,000 a month in revenues now and continues to use factoring to generate working capital.
