Accounts Receivable Financing Case Study

Accounts Receivable Financing Case Study

American Staffing, Inc. Case Study

This case study shows how Accounts Receivable Financing can be used to solve the cash flow problems of a staffing company. To protect client privacy, we have changed some details (including their name) in this business case. Also, the numbers have been simplified to make the case study easy to understand, but the key facts and lessons remain.

The Challenge

American Staffing, Inc. (ASI) is a staffing company that matches large corporate clients with qualified candidates to fill open positions within the corporation. Although ASI is a small company with just a few employees, they have secured three large contracts. However, between start-up costs, payroll, and operating expenses, the company only has $10,000 left in the bank.

Their three contracts each pay $100,000 per month for services, but the invoices are paid 30 days after services have been delivered. The company’s payroll is $150,000 per month and an additional $30,000 dollars per month is spent on other general business expenses. The table below provides a simplified snapshot of ASI’s financial position:

Before AR Financing Case Study

Although the company is doing relatively well, it is low on cash and won’t be able to meet their general expense and payroll liabilities, causing them to have a cash deficit of $170,000. ASI will have money coming in as soon as their invoices are paid, but in the meantime, they are unable to meet their expenses.

Solving the Problem with AR Financing

ASI could solve their current cash flow issue with a business loan, but there is a problem with this approach. Banks don’t usually provide financing to small companies unless they have substantial collateral and a track record of profits, ASI has neither. Also, getting bank financing can often take a while. This won’t help a company that needs funds quickly.

AR Financing can solve the problem by financing slow-paying invoices from credit-worthy commercial clients. This solution allows ASI to turn a portion of their slow-paying receivables into immediate cash, usually up to 90% of outstanding invoices is advanced to the client. The remaining 10% is held as a reserve until the invoices are paid in full. At that time, the transaction settles.

The following table shows a summary snapshot of ASI’s financial position after Accounts Receivable Financing has been deployed.

Immediately After AR Financing Case Study

The first thing to notice is that the cash deficit turned into a cash surplus of $100,000. The $30,000 held as reserve will be returned, less the finance fee, once ASI’s customers pay the invoices. The company now has enough cash to pay its operating expenses and payroll.

The Biggest Benefit - Growth

The biggest benefit from this transaction is not immediately obvious from the post-AR Financing snapshot. ASI previously had been unable to take on new clients, even though demand for their services were high. They simply could not afford to offer commercial credit terms to their new clients, mainly because it would require an increase in employees and associated general expenses. Unfortunately, growth was not an option, and even survival was questionable.

However, Accounts Receivable Financing changed their circumstances. After implementing the financing facility, they were able to take on two new clients, which increased A/R by $200,000. ASI was able to easily pay for the increase in payroll and other expenses thanks to their AR financing line. The following table shows a summary snapshot of ASI’s growth financial position.

AR Financing Growth Case Study

Why did AR Financing work so well for ASI?

ASI was able to achieve a financial turnaround relatively quickly using Accounts Receivable Financing. The company had a number of things going for it which helped this happen.

First, the company was well run and very profitable from the start. As is shown clearly in the second table, they had a sizable cash surplus after the first financing transaction. In fact, if they had chosen to stay at their current size, they could have stopped using AR Financing soon after building an adequate reserve – a process that would have taken less than a year.

ASI also worked with three large corporate clients, all well-known, brand-name companies who had great commercial credit. This simplified the process of financing their invoices because the collateral was excellent.

Above all, ASI’s management was smart. They were able to leverage their AR Financing line into a growth tool that allowed them to take on new clients. It wasn’t long before they were only financing invoices from new clients, as they no longer needed funding for their initial three clients. Basically, AR Financing allowed them to finance their growth.

Transitioning to the Bank

The one challenge for ASI was that the cost of Accounts Receivable Financing was higher than the cost of more traditional financing options, like a business loan. This was not an issue when they had a cash flow emergency and AR Financing was their only option. However, management was smart and used their receivables financing line as a stepping stone to traditional financing. Within two years, ASI was able to meet the underwriting requirements of a bank and secured a sizable line of credit. They used the line of credit to replace the AR financing line, which further increased their profitability.

Learn more about Accounts Receivable Financing with SouthStar Capital!

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10 Questions: Is Accounts Receivable Financing right for your business?

Is Accounts Receivable Financing Right for You
Is Accounts Receivable Financing Right for You

When considering if Accounts Receivable Financing is the right solution for obtaining working capital for your business, ask yourself these 10 questions:

  1. Could you increase sales with more working capital?
  2. Do you have to scramble at the end of the week or month to cover your payroll expenses?
  3. Is your business in growth mode?
  4. Have you been turned down by a bank for financing?
  5. Do you have projects that you could be bidding if you were assured the cash flow required would be available to you?
  6. Do you have challenged financial history or personal credit issues?
  7. Do the majority of your clients pay over 30 days?
  8. Do you have to be selective in choosing customers because they do not pay on time?
  9. Does your business rely heavily on inventory, requiring large capital expenditures to fulfill orders?
  10. Do you want a minimal amount of required management of cash, instead of the constant day-to-day advances of a line of credit?

If you answered YES to one or more of the above questions, then you are definitely a candidate for Accounts Receivable Financing.

Learn more about Accounts Receivable Financing with SouthStar Capital!

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The Cost of Invoice Financing

Cost of Invoice Financing
Cost of Invoice Financing

Have you ever considered invoice financing, but thought the cost would be prohibitive? Well, maybe the question should be what is the cost of not financing your invoices? If you’re turning down a large job or contract because you don’t have enough working capital, think about the associated revenue your business is missing out on. Consider not just the lost opportunity cost, but also the growth opportunities your business is missing due to a lack of cash flow.

With invoice financing, we advance up to 90% of your outstanding invoices, so you get the capital you need right when you need it. Our funding decision is based on the credit quality of your clients that owe on the invoice, not your credit score. Once the invoice is paid, we remit the balance back to you, minus our fee. There’s no lump sum loan amount to repay or minimum monthly payments to make. Invoice financing simply gets you your money faster, providing you payment within 24 hours of submitting your invoice for your delivered product or service.

SouthStar is more than just a source of steady capital. You can also think of us as your accounts payable and accounts receivable departments. We’ll handle your billing and keep up with which customers have paid and which are outstanding. This is at no additional cost and saves you from hiring office staff to do the job. We also provide credit checks on your new clients to ensure the credit-worthiness of your new prospects.

Contact us today to learn more!

5 Reasons to use Invoice Financing to Grow your Business

Grow Your Business with Invoice Financing

The 5 reasons to grow your business with Invoice Financing.

Grow Your Business with Invoice Financing


Easier Qualification

Qualifying for a bank loan can be strenuous and time consuming, especially if you have a challenged credit history. Invoice Financing is different, in that the qualification process is based on your customers’ credit, not your own.


Get Paid Faster

Why should you have to wait 30, 60, or even 90 days to get paid by your customers? Invoice Financing allows you to unlock the cash within your business immediately, making growing your business easier.


Add Flexibility

Invoice Financing is a means of accelerating payments you’ve already earned. You can choose to finance invoices as you please, and there’s no restrictions on the amount of invoices you submit. You can also use your financing as you see fit, whether it be to order new materials, purchase new equipment, or meet payroll.


More Affordable

Compared to alternatives, such as merchant cash advances and title loans, Invoice Financing is an inexpensive way to fund your business. No extraneous fees, just a set rate.


Receivables Management

Working with an asset based lender, like SouthStar, helps reduce the various expenses associated with processing invoices and collections. We will handle your collections, so you can concentrate on managing your business and not having to worry about day-to-day accounts receivable.

Don’t be Fooled by Online Lenders

Safer Than Online Lenders

A Safer Option than Online Lenders.

Safer Than Online Lenders

We know that business owners can get in a pinch financially and feel they need to resort to online lenders for fast cash. Many of these online lenders, such as a Merchant Cash Advance (MCA), offer quick funding with little paperwork, but this decision can have long term effects on your finances. These online lending structures may be based on your business’s future sales, making it a higher risk funding option with a greater liability on your balance sheet. Many of these online options also have very high interest rates, forcing you into a longer payoff period.

We provide a safer financing option.

SouthStar Capital provides a safer alternative to online lenders, through Asset Based Financing. Rather than looking to future sales, like Merchant Cash Advances, or to past performance, like banks, we provide working capital solutions based on your assets, such as accounts receivable, purchase orders, contracts, and equipment. By advancing against your assets, we are able to a provide a more responsible and reliable financing option, without adding debt to your balance sheet.

We are also a fast source of funding, with same day approval, closing in 2-5 days, and 24 hour funding. Unlike online lenders, the financing we provide doesn’t just put a band-aid on the problem. We have a dedicated account team to work with you in structuring the best solution for your business’s current and future growth. Our goal is to provide the resources and support needed to grow your business to a stable and healthy financial position.

Why Invoice Financing may be better than a Business Loan

Invoice Financing vs Business Loan

Invoice Financing may be better for your
company than a Business Loan.

Invoice Financing vs Business Loan

According to The Service Corps of Retired Executives (SCORE), 82% of start-ups and small businesses fail because owners have a poor understanding of cash-flow management and lack the ability to access working capital needed for growth.

One funding option that is often overlooked is invoice financing. This alternative lending method does not have the same strenuous requirement process as a traditional business loan. The main qualification is that a company has customers with outstanding invoices that are paid on terms. Below, we will take a look at why invoice financing might be a good fit for you.

Invoice Financing means...

Navy Triangle

No Debt Added

Invoice Financing doesn’t require a company to take on additional debt or have the pressure of paying back debt. The less debt acquired, the better your balance sheet, financials, ratios and investor perception. It also allows companies to receive needed capital without the hassle and risk of a loan.

Quick Funding

If a company needs money fast, there are few better options then invoice financing. In 2-3 days, a company can receive up to 90% of their outstanding invoices. After initial funding, capital can be provided within 24 hours.

Simplistic, Fast Process

In order to receive a bank loan, a company has to provide all of their financial statements, have very good credit, and have been in business for a good amount of time, generally more than 3 years. In contrast, invoice financing lenders are mostly concerned with the credit of the entity (debtor) that owes on the invoice, or your customer. This non-traditional approach takes a lot of pressure off the company in need of money.

No Debt to Payback

Because the money advanced is not a loan, it does not have to be paid back. As a result, there are no payments, principal, and interest to be made. The invoice is paid back by your debtor when payment is due and they receive no hassle about early payment, in turn increasing customer satisfaction.

3rd Party Handles Collections

Most Invoice Financing lenders will also handle collection duties for all invoices (even invoices not being financed). This service can provide huge savings for your company, as well as the ability to concentrate on managing your business and not having to worry about collections.

Does Making Payroll Stress You Out?

Payroll Funding

Payroll Funding may be the answer.

Payroll Stress

What is Payroll Funding?

Funding payroll can be a challenge without a constant source of cash flow. Even if your customers pay within 30 days, your employees likely need to be paid sooner. If your customers have longer payment terms of 45, 60, or even 90 days, Payroll Funding may be a necessity for paying your employees on time.

How does Payroll Funding work?

Slow paying customers, rapid growth periods, seasonal patterns, selling on credit terms, and other factors can create cash flow challenges for your business. With Payroll Funding, rather than waiting for your customers to pay, SouthStar will advance up to 95% of the total value of your unpaid invoices immediately. Then you receive the remaining balance, minus a small fee, once the invoice is paid. This process can be repeated for as many invoices you submit.

By having access to unlimited working capital, you will always have the cash flow needed for payroll, as well as other expenses. The process creates zero debt for your company, so you won’t have to worry about paying back loans or high interest rates.

The 5 Steps of Payroll Funding

Payroll Funding Process

What to Expect with Payroll Funding

As client of SouthStar’s Payroll Funding solution, you will be assigned a personal account manager who will handle collections, payment processing, and customer credit approvals, allowing you to focus on your business. With Payroll Funding, we look at the credit history of your customer, not your company or personal credit history. Years in business is not a factor in our decision to finance, making Payroll Funding great for start-ups.

Once established with SouthStar, you will receive same-day funding on submitted invoices. This gives you access to unlimited working capital, right when you need it. Payroll Funding also allows you to extend longer payment terms to clients and grow your business.

Your Business May Be at Risk of Growing to Death

Business Grow to Death
business growing

Growth is usually viewed as a positive step for business owners, but if not managed properly, growth could be the death of your business.

If your business grows too fast, or grows the wrong way, you can actually grow yourself out of business. Along with growth comes the costs of additional staff, system development, and changes in operations. Without access to working capital, your business won’t be able to support these essential changes.

By tapping into your business’s Accounts Receivable, or outstanding invoices, you can free up existing capital and have access to the immediate cash flow needed for growth. Other assets, such as equipment, inventory, or purchase orders, can be used as collateral to advance capital to your business as well. Both of these options have a fast and easy qualification process that allow for initial funding in just 2-3 days. Unlike traditional lenders, we will not turn you down based on amount of years in business or your credit history. Plus, after initial funding, working capital will arrive in your bank account within just 24 hours of submitting an invoice.

If your business is growing faster than your capital can keep up, don't let it grow to death! Treat yourself today and learn more about your working capital options.

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SouthStar’s Recent Working Capital Solution

Working Capital Solution

Providing alternative solutions to businesses in need of a fast and reliable source of working capital.

Below is one of our recent funding solutions that provided our client with the working capital needed to ensure the growth and success of their business.

Navy Triangle

$1,000,000 Receivables Line coupled with a $350,000 Equipment Lease, along with a Brokerage Line of $500,000 and a $100,000 Term Note for a Trucking and Storage Company

SouthStar Transaction

Contact us today to discuss the working capital options available to your business.

How You Can Be a ‘Shark Tank’ Winner

Shark Tank
Shark Tank

Getting the chance to be on the reality show ‘Shark Tank’ can be a huge opportunity for any business. Having a great idea and company can only get you so far if you lack the working capital to grow.

What if we told you that SouthStar Capital can provide the same benefits as the show ‘Shark Tank’, but our version is even better? We can provide your business with the capital needed for growth, but we do not require any equity within your company. Instead, we use the existing assets you already own and turn them into working capital. In-turn, you keep 100% ownership of your company and have unlimited access to working capital.

SO...

  • If your business needs working capital for start-up or growth
  • If you dream about how much your business would benefit from being on the show ‘Shark Tank’