Recognising the Potential
In 2007 the Australian Government commenced a renewable energy program called the Solar Homes and Communities Program. The program provided rebates to householders and owners of community-use buildings who acquired Photovoltaic (PV) energy systems.
Solar Harness was one company which provided and installed the energy systems. The company applied to the government and was successful in having a contract to supply homes in Western Australia.
While government business would be deemed low risk with regard to being paid, the payment terms contractors had to accept could themselves present a risk for a small to medium business.
Under the terms of the contract, invoices issued to the government would not be paid in under 45 days and could stretch up to 60 days. When those invoices are well in to six or even seven figures that is a lot of revenue which is not available for a company to use.
Nathan Parker was a working director of Solar Harness at the time and commented “There was nothing worse than getting work and not being able to facilitate it because of cash flow problems.” The company needed a solution.
Looking for a way to provide a regular cash flow, Nathan did consider more traditional funding and in spite of the customer being the Australian Government, the fact it was a solitary customer meant the company wasn’t successful in getting funding. A “single debtor” scenario is usually considered high risk.
Without having several million dollars of real estate collateral to offer, the amount of funding required also proved to be a stumbling block for banking type finance. The quality of the end customer was never taken into account.
Nathan was aware of factoring or debtor invoice and spoke with Dave Tate at Cashflow who was prepared to listen and who could see the potential of doing business with Solar Harness. Cashflow looked beyond the “single customer” scenario, they discussed possibilities with the three Solar Harness directors, considered the credentials of the customer, the business processes of the company, business to date and the future potential.
“Cashflow were easy to deal with, Dave took the time to explain everything, how it all worked and came up with a workable solution, which allowed us to take on more business” said Nathan.
Every single invoice was paid. It was a profitable venture for all concerned, business which was based on good faith and good judgement.
In June 2009, the government terminated the program, however all contracts entered prior to the termination meant work continued following that date.
Nathan Parker now runs a rather different business with payment terms he controls, so he no longer uses Cashflow to ensure his company’s regular revenue. However, should the need ever arise he wouldn’t think twice about using Cashflow to ensure a regular revenue stream.
Factoring: Sound Business Sense
Outsourcing is no longer unusual or misunderstood, it has become a valued service. Particularly when it is not viable to have a resource in-house or it makes more sense to have an external resource.
Today there are many services which are handled externally by a consultant, contractor or freelancer, for instance, the virtual assistant or VA has become extremely popular and suits people who have a need to work from home and employers who don’t need a full-time receptionist.
Factoring can be considered as outsourcing your debtors but don’t confuse it with debt collection, that is quite a different service.
Outsourcing debtors is how Wayne considers CashFlow. He also considers CashFlow as a business partner with whom he has a strong relationship.
This is not the first time Wayne has used the factoring services of CashFlow. With a previous business which was quite reliant on resources companies whose payment terms were 60 to 90 days, he turned to factoring to ensure a steady cash flow for his business. As he wanted to grow his business, it was not possible with erratic cash flow and he needed to find a solution.
Since then Wayne started a new business and has continued using CashFlow to manage his debtors and ensure continued regular cash flow. He said “They are a great company to work with. It is a ‘no-brainer’, why wouldn’t we go back.” It wasn’t an issue of cash flow problems to continue working with Cashflow, it just continued to make good business sense.
Customer service is important to Wayne both in running his own business and working with other companies. “We live in a day and age where so many just pay lip service and don’t provide real customer service. With CashFlow it is not lip service, they work with you and as a result, I have a personal relationship with them.”
If anyone was in any doubt about the importance of customer service to his business, Wayne has a saying on a wall in his office:
‘A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large.’ Henry Ford
This saying is even more relevant in today’s world and a good mantra for any business to live by.
David and Sue
CashFlow: A Client Perspective
A prominent story in recent news told of Rio Tinto’s move to increase their payment terms from 45 days to 90 days which would have affected $24 billion in supply contracts, many of them being contracts with small business.
This of course, raised the ire of business owners and business commentators alike. Rio Tinto changed their mind following the outcry.
It was this very same situation that David and Sue found themselves in some years ago. Their recycling business had a number of resource companies as clients who all dictated their own credit terms, with most being considerably more than 30 days, a tough situation for a small business to be in. With some work involving the cleaning and supply of up to 8,000 44 gallon drums, the sum of money involved was not small change.
David and Sue needed to improve their cash flow and David knew of factoring as an option, as his parents had used this facility when running their own business. Dave considered factoring to be a viable option and a lot less stressful than approaching a bank and dealing with the all the administration and paperwork. They also did the sums comparing a Factor to options such as an overdraft, and factoring was still the more attractive option.
CashFlow was one of the Factors David and Sue contacted. Both felt the company listened and understood their situation. CashFlow was also willing to discuss their business, offer advice and work with them. Dave describes working with CashFlow “like one used to do with an old-fashioned bank manager, someone to talk to and who provides good customer service.”
“Customer service like it used to be” he added.
Sue and David now run a transport company and although they could run their business without using a Factor, they have chosen to stay with CashFlow because it is so much easier than managing this aspect of the business themselves. Outsourcing their accounts receivable means they can get on with activities to grow their business.
David said it has a lot to do with the people at CashFlow, the regular communication, and their willingness to go the extra distance. He said, “I know that at any time I want to know who owes us money, we don’t have to spend time working it out, the information is readily available straight away.”
It is now more than eight years since David and Sue started using Cashflow and they have no intention of changing this part of their business, even as their transport business is growing.
Loyalty is a powerful thing and in this business relationship, it works both ways.