How Factoring Saved a Business

June 29, 2023 | Blog, Case Studies

 

Joe’s* business performs collections of past-due utility bills for a large city. It’s a straightforward gig:

• the city tells him exactly how much they’re going to pay him
• they tell him when they’re going to pay him
• his only expense is payroll

Unfortunately, Joe consistently had a 10-14-day shortfall between payment and payroll. For years, he and his bank managed this mismatch through overdrafts. His bank essentially fronted the money, and Joe paid for this “financing” through overdraft fees.

Until one day, the bank decided it could no longer operate this way. The chronic overdrafts had to stop.

A Simple Solution

The bank didn’t want to lose Joe as a customer, yet recognized they could no longer meet his needs. They decided to refer him to Sky Business Credit for factoring.

Given Joe’s circumstances, many other factoring companies would have labeled his business as financially troubled and refused to offer him financing. Sky, though, took the time to understand Joe’s company and its needs, with the primary issue being that the City’s payment cycle simply doesn’t match his payroll cycle.

We moved to credit review, which the city passed. Further, Joe’s business is quite literally incentivized to collect money individuals owe the city, as the city uses those funds to pay Joe’s company. And, because the city generates a report once a month letting Joe’s business know how much they are paying his business based on their successful collection efforts, we know that Joe’s invoice will pay exactly as billed 30-45 days later.

A Growth Outcome

Sky used Joe’s invoices to give him the cash flow he needed to cover his expenses. With the working capital, he was also able to grow—so much, in fact, that he got to the point where he was receiving an over-advance for six to seven months out of the year. Of course, Sky was able to quickly evaluate and adjust its advance rate to meet Joe’s needs.

When bank policies changed, they initiated a chain of events that had the potential to go negatively or positively. By coming together, we reached a positive outcome:

• Joe’s banker was able to offer a solution to their long-time client and retain him as a customer
• Joe’s company stopped paying exorbitant overdraft fees. It received the cash it needed to not just survive but thrive
• Personally, Joe got peace of mind, and his anxiety decreased

If you are struggling – through no fault of your own! – to meet your client’s needs, Sky can be a resource. Contact us today to talk about how we can help your referral achieve their cash flow needs.

*Not his real name.