How Factoring Saved an Electronics Company

You are here: Home » How Factoring Saved an Electronics Company

May 25, 2016 dbr (0)

Every business owner knows how the interruption or payment delay of accounts receivable can threaten the survival of their company.  This true story (using fake names) describes how factoring helped a San Diego based electronics company avoid going out of business.

 

Mike Smith is an engineer who has successfully operated Smith Electronics for over 10 years.  During this time, Smith Electronics has developed a good reputation for creating integrated systems consisting of custom hardware and software designed for the measurement of many different biological functions in humans and animals.

 

As a result of the Great Recession of 2008, like the owners of so many other small businesses in Southern California by 2011 Mike Smith had used up all of his personal savings and he had borrowed against all the available equity in his house to keep the doors open at Smith Electronics.

 

In 2012, with the economy rebuilding a giant pharmaceutical company hired Smith Electronics to track biological functions in animals being used to test various drug interactions.   The initial payment terms for this work were set at Net 30 days, but payments were generally received by Smith Electronics no sooner than 45 days after the work was done.

 

Although invoice payments received from the pharmaceutical giant started getting later and later, the work was steady and the profit margins were high for their projects so Smith Electronics kept taking increasing amounts of work from them.  To accommodate the increased work load, Smith Electronics hired new employees and rented additional space.

 

By 2013, the work Smith Electronics was doing for the pharmaceutical giant had become more than 50% of total monthly accounts receivable being generated by Smith Electronics and a significant amount of Smith Electronics available capital was tied up in material and labor costs required to fulfill the increasing orders.

 

Then, in 2014, with no advance warning the pharmaceutical giant announced they were changing the payment terms for all their vendors from Net 30 days to Net 60 days.  From prior history, Mike Smith knew that Net 60 day payment terms actually meant he would be receiving future payments from the pharmaceutical giant no sooner than 75 days after services were provided.

 

Although he had never used invoice factoring before, soon after he learned about the vendor payment change by his largest customer a friend referred Mike Smith to DBR so he could stabilize the cash flow of Smith Electronics through the factoring of his accounts receivable.   With the ability to convert accounts receivable into immediate case, Mike Smith was able to manage his cash flow and meet all his financial obligations.

 

Smith Electronics is currently a very profitable company and does not need to factor their invoices.  But to this day, Mike Smith tells everyone he knows that without the factoring services of DBR in 2014 and 2015, it is likely that Smith Electronics would have gone out of business.

 

To learn more about the benefits of Invoice Factoring please contact DBR’s COO, Ben Gage, by phone at (760) 738-1400 or email Ben(at)dbrfactors.com.

Comments are closed.