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As a factoring company Fostrian's mission is 100% centered on fostering our clients' growth and overall emergence to success. We want our clients to strengthen their financial position and graduate to bank financing.
Invoice Factoring Case #1 Sun Products, Inc.
The Chicago Area Company's Situation
Sun Products is a designer and distributor of sunglasses. The company outsources the manufacture of their product and sells mostly to casino gift shops and other shops selling into various vacation spots around the United States.
Sun Products had been in business for 25 years when it came to us. Historically it had been a very successful company. Through the years Sun had been able to support its steady growth with retained earnings and had never needed to take on debt. At its peak the company was doing $10 million/year in sales with a corresponding net profit figure of $2 million.
But in recent years Sun had run into major problems. The company suffered because of a downturn in the economy. On top of the bad economy, Sun had lost its largest customer - a customer who constituted 30% of annual sales. As a result, Sun Products' annual sales were down to $5 million, it was showing losses for the previous three years and its balance sheet had been severely weakened.
The company had taken action to put itself on a path to recovery. It responded to its problems by cutting the fat out of its expenses and bringing on two new major customers. The projected sales to these two new customers (and some others) would replace the sales lost from Sun's former #1 customer, and then some. In fact the new business Sun had brought on would increase its annual sales by 50%. Sun had found the answer but there was a problem.
The problem was that Sun Products needed a credit line to support this increase in sales, but the banks were unwilling to lend. Sun's weak financial condition caused it to be ineligible for a bank credit facility.
A second problem was that Sun did not have a strong credit department and was thus selling to some financially weak companies it shouldn't have been selling to. This problem was compounded by the fact that Sun's strength was not in collecting its receivables. As a result many of its customers were paying very slowly, stringing out Sun's aging and unnecessarily tying up significant dollars of needed capital in the company's accounts receivable.
The Factoring Solution
Sun Products, Inc. came to us for help. They were interested in obtaining accounts receivable financing (a factoring credit line). After doing our due diligence we were impressed with Sun's moves to turn the company around. We concluded that Sun was a viable entity...and then some. We agreed to provide accounts receivable financing through a factoring credit line. The factoring credit line would provide Sun the capital it needed to finance the rapid increase in sales that were sitting in its sales pipeline.
We also provided Sun an accounts receivable/credit department management service that came with the factoring credit line - at no extra cost. We injected ourselves into the management of Sun's credit department and within a few months Sun's receivables were performing at a level that was better than acceptable.
The Story's Happy Ending
The accounts receivable financing/factoring credit line supported Sun Products Inc. and allowed it to realize a 50% increase in sales in just one year's time. Sun would also become profitable again in that first year. Sun continued to grow. Within two years Sun's strengthened balance sheet and two years of profitability put it in a position to graduate from the factoring credit line to a less expensive bank credit facility. It would apply, and be approved for, a bank credit facility that would take over for the factoring credit line.
Sun had also bought into, and been a partner in, the accounts receivable management strategy we employed to clean up the receivables. Thus the company was able to continue on its own the receivables management regimen we had carried out for Sun during the factoring relationship
During the 4 year span of time after graduating from the factoring credit line, Sun grew rapidly and earned healthy profits in each year. It was able to invest these profits back into the business. While the company continued to utilize its bank revolving credit line in busy times, the company's cash position became so strong it would never need to borrow the full amount available to it under the terms of the bank line.
To sum up, the accounts receivable financing/ factoring credit line we provided to Sun Products allowed it to realize an increase in sales that it otherwise wouldn't have been able to realize. These sales would pull Sun out of the hole it was in and allow the company to emerge into profitability - emerge into a financially much stronger company... a company that was able to graduate from the factoring credit line... replacing the factoring credit line with an inexpensive bank credit facility that would support Sun Products and its continued growth.
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