If you are a member of NATE, you probably count yourself fortunate to be in this market segment. According to the latest IBISWorld’s Electric Transmission Line & Tower Installation market research report, demand for new tower construction remained consistent through the recession and has accelerated.
Additionally, several factors indicate continued growth in your market. Depending on your company’s focus, you will see increased activity due to:
- New demands for renewable and alternate energy sources
- Continued and increased government incentives
- Increased funding for upgrades and replacement of old towers
- Increasing demand for telecommunications capacity
All of these factors collectively indicate a period of continued growth in the construction, maintenance, and repair of a number of types of towers and installations.
Managing Cash Flow Needs Due to Demand Growth
While growth is something most small business owners seek and work for, you also know the special demands such an environment creates. You have to keep your team fully staffed and trained, maintain quality and reliable performance standards, and meet challenging schedules.
Meeting the Demand
On top of these operational concerns, administrative and financial issues often accompany rapid growth. Particularly when dealing with larger companies, the terms provided on many projects often stretch your cash flow and financial resources. Even if a job is profitable, it can be a real burden to meet payroll and keep vendors happy while awaiting completion and final sign off and eventual payment.
While demand has remained consistent during the recession for many companies, the availability of financing has affected many NATE members. Even if your existing lines of credit weren’t cut back as with many operators, you probably haven’t been able to obtain any additional bank funding.
Whether you need more working capital to carry new projects, add to your team, or buy new equipment, the last thing you want is to be slowed up by a lack of funds. It’s especially frustrating to have a successful company and be confronted with cash flow problems.
Finding Creative Solutions
Just as you often solve operational issues with out-of-the-box thinking, you can often find nontraditional solutions to your financing problems. If you follow the example of many of your NATE members, you can benefit from investigating the power of using your invoices as a ready source of cash.
You know well that many of your vendors like to stretch their payments as long as they can. Whether on purpose or not, it often seems it’s some of the largest jobs that take the longest to pay up. Even when timely payments come in, they frequently leave a long lag time between you making payroll and paying for materials.
When you turn to an invoice factoring company, you can see the cash on a completed job quickly, often in just 24 to 48 hours. Instead of waiting a couple or three months and sweating out when that check will arrive in the mail, you can turn the entire process over to your factoring partner and move on to the next project without the hassles of collection.
There is nothing magic about the factoring alternative, although it seems magical to have cash and profits in the bank so quickly after job completion. It is also a wonderful way to ensure you can take on the jobs you want to without scrambling for more working capital or worrying about debt.
A Practical Look at Factoring in Action
Our goal is to show you how invoice factoring can serve as a powerful, flexible and affordable financial tool.
Our assumptions for Growing Tower Company are as follows:
Total current A/R – $250,000
Current Work being completed: o Project A – $50,000
o Project B – $25,000
o Project C – $100,000
Cost of bank financing – 12 percent annual
Available bank working line- $100,000
Factoring relationship o Advance – 80 percent
o Cost – 1.5 percent per month
Growing Tower Company’s Approach
The owner and accountant for GTC meet and discuss the next month’s cash flow needs. They will finish all three projects A, B, and C next week. The company hopes to start four new jobs during the month and needs to order more than $100,000 in new materials and $20,000 for a lease on a new specialty lift.
Current cash flow projections show the company will be short of needed cash by $50,000 to $75,000 depending on whether current invoices outstanding are paid on time. One $40,000 invoice is already 15 days late.
The company has a revolving line of bank credit and just completed an application and received approval from a factoring company. Based on the current bank line, the cost of bank financing is one percent per month.
- Bill customers A and B under normal terms without factoring
- Factor customer C, receive $80,000 immediately and pay down the credit line
- Bid the larger of the new projects at 2 percent higher than planned and have their factor pre-approve them for factoring
- Negotiate a discount on the new material order by offering cash and ordering a bit more than needed
- Redouble efforts to collect the late invoice
Based on this course of action, GTC is able to protect its bank line and slightly reduce interest costs until it has to draw down for the inventory purchase. This pleases their bankers and shows performance. GTC bids the four new jobs, confident they won’t face cash flow problems. They also get the new lift in place to help with the jobs and estimate at least a 5 percent increase in productivity on these and future jobs.
GTC’s owner also chooses to increase the bid on one of the four jobs by an additional 2 percent based on the credit issues the factor uncovers and the terms offered.
The net calculation shows the company works more efficiently with no increase in its debt load and better management of the risk on future customers. While it is difficult to calculate the net cost of the factoring, the owner feels it is minimal, particularly when his peace of mind is factored in.
How Will Factoring Work for You?
If such flexibility and financial power sound attractive to you, give us a call today. We’ll be glad to explain the details and tailor a proposal that meets your specific situation and requirements. With virtually no startup costs or fixed costs, you can put this tool to work immediately and enjoy its benefits with little to no risk.