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
These factors collectively indicate a period of continued growth in constructing, maintaining, and repairing several 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 must 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, 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 obtained 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. Having a successful company and being confronted with cash flow problems is especially frustrating.
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.
Many of your vendors like to stretch their payments as long as possible. 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 lag between you making payroll and paying for materials.
When you turn to an invoice factoring company, you can quickly see the cash on a completed job, often in just 24 to 48 hours. Instead of waiting a couple or three months and sweating out when that check will arrive, 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 having cash and profits in the bank so quickly after job completion seems magical. 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
We aim to show you how invoice factoring can be 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: Project A – $50,000, Project B – $25,000, Project C – $100,000
- Cost of bank financing – 12 percent annual
- Available bank working line- $100,000
- Factoring relationship o Advance – 80 percent
- Cost – 1.5 percent per month
Growing Tower Company’s Approach
- Bill customers A and B under normal terms without factoring
- Factor customer C to 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
The Results
Based on this action, GTC can protect its bank line and slightly reduce interest costs until it draws 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 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 risk management for 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?
Call us today if such flexibility and financial power sound attractive to you. We’ll gladly 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.
More Resources
