Apr 18, 2010
My thoughts on credit markets, sage philosophy and serendipitous financial solutions- not necessarily in this order Recently, during a visit with a prospective client, we were in the middle of a very productive conversation regarding the state of his business and I asked him what I thought was a very good question: “What about your business keeps you up at night?”
My thoughts on credit markets, sage philosophy and serendipitous financial solutions- not necessarily in this order
Recently, during a visit with a prospective client, we were in the middle of a very productive conversation regarding the state of his business and I asked him what I thought was a very good question: “What about your business keeps you up at night?”
Now… usual answers to this question vary from person to person, but usually center around the following topics:
1. Cash flow
2. Employee fraud or theft
4. Sourcing increased revenue
Now, back to the conversation with my prospective client…He went on to explain that he has significant portions of his annual sales (and accounts receivable) concentrated in a handful of fortune 500 firms.
At first blush, my thoughts were that this is not out of the ordinary, and may tend to mitigate some of the credit risk present in his accounts receivable portfolio because he is selling to well known, highly regarded, stable companies with readily available financial statements and credit information.
There are two (2) sides to every coin, and this one is no different:
In our conversation, I was told that these companies “pay when they feel like it, regardless of their stated terms”. He went on to say “I have talked to Vice Presidents, Senior Vice Presidents and Regional Directors. In some cases, I was able to get them to bring me current…then they stopped buying for about 30 days…I suppose to teach me a lesson…it did and cost me $40-$50,000 in revenue. I’m between a rock and a hard place. Can you help me with this?”
Here is what I really love about my practice…the opportunity to make lemonade for my clients out of their lemons.
A few days after I met with this potential client I received the April, 2010 edition of CFO Magazine in the mail. While paging through, I came across a very informative article by Vincent Ryan in the credit & capital section titled Lien on Me. This article seemed to be written specifically for me. In it Vincent Ryan explores several ways that CFOs can fill financing and liquidity gaps by turning to receivables. Among them:
1. Asset based lending secured by working capital components (receivables and inventory).
2. Factoring (without recourse).
a. A hybrid approach combining an asset based lending features with a factoring arrangement on a with recourse basis.
3. Auctioning of receivables to the highest bidder using today’s internet based website technology.
This potential client agreed to have me perform a Phase 1 analysis of his company and I have some new and some not so new tools to potentially apply to his situation.