Learn how some companies find creative ways to improve cash flow without alienating their customers or stringing out their suppliers.

A prospective client of ours (a CEO) was having cash flow problems (due to growth in his business). His CFO presented him with two options:

1. Pressure customers to pay more timely, which might cause them to go running to a competitor.

2. Pay suppliers more slowly and increase payables outstanding by another 15 days. This option would negatively affect the Company’s excellent rating with Dun and Bradstreet.

The CEO contacted us to see if there was an alternative financing method that we could suggest. He did not want suppliers to carry the cash flow burden. They were already providing a great value-added service and played an important strategic partnership role in the production of inventory. They provided in-house inventory (raw materials, etc.) without cost, until it was used. This increased the company’s cash flow because the cost of goods sold was invested in finished products only, not raw materials. Since the cost of inventory was calculated on finished goods only, inventory turns were exceptional.

In an effort to keep his suppliers current and still accommodate new customer growth by extending credit, he opted for debt free financing. He did not want a traditional line of credit that would require audit fees, personal guarantees, a pledge of hard assets (as collateral), appraisal fees, monitoring fees and other fees that are usually involved with conventional credit lines.

So what did we offer him? Accounts receivable financing - a debt-free type of financing that many companies are turning to. It allows them to convert accounts receivable into a working line of credit (without the debt) and increase cash flow without pressuring customers for collection.

Unlike larger banks that focus on large corporate customers, accounts receivable finance companies have emerged to help smaller companies that need receivable factoring. Accounts receivable financing can be established with as little as $10,000 a month in sales for smaller companies, and with as much as $10 million in sales per month for larger companies. Not all factoring companies accept every industry.