Ever worked on getting that big customer for months, chasing after then, long drives or flights to see them so you can win them over with your service and determination? Then have the worst thing that can happen in a situation like that you get the order and now you have to figure out how you can possibly fill it because the order larger than your total Operating Line of Credit.
That did happen to a Telecommunication Company in New York State, USA. In one order, their sales had increased to over 3 times the size of their entire Line of Credit at their bank. The owner went to the bank to get it increased so they could take on the order but the bank refused to increase their limit.
With this order, the customer had to have terms on the invoice of 30 days, and to make it worse the supplier required payment prior to shipping. The time to deliver the goods from the time it leaves the supplier dock is 10 days. In this case we have a 10 day delivery time plus a 30 day collection time from the customer, so we have a 40 time span of where we do not have the financial capacity to handle the order. So what now? Decline the order?
The owner of the company did speak with some Accounts Receivable Factoring Companies but they were not able to help out due to the time lag between the timing of the advance requirement and the delivery of the goods to the customer. They could not Factor the Accounts Receivable until the product was delivered, and they could not deliver the product until they received an advance to pay for the product.
The owner of the Company was then referred to a Commercial Finance Brokerage who immediately assembled a Purchase Order Finance and Accounts Receivable Factoring facility. Now the order was able to be processed and now the door is open for future orders from and large buyers.
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