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.
The owners had tied up their personal assets as much as possible in order to have the cash flow needed to carry the 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. - 15246
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.
The owners had tied up their personal assets as much as possible in order to have the cash flow needed to carry the 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. - 15246
About the Author:
Wade Henderson is a recognized Professional in Commercial Lending with over 14 years Experience in the Business Finance Field and a strong reputation for getting the deal done. Visit IMMFinancial.com to put his experience to work for you. Factoring Loan * Invoice Factoring * A R Factoring * Small Business Factoring
