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Using Factoring to Find Capital in a Recession

Managing cash flow in the credit crunch: how the construction industry can benefit from factoring

 Factoring is a viable option to lending

Written by Judy Perdomo, President of Liquid Capital Rockyview Inc.

Banks don’t seem to have any money to lend right now – or at least none they want to.  This places financial stress on many companies, especially in the construction industry.

Yet business must move forward. Companies still need to buy supplies, meet payroll, cover seasonal adjustments and even seize market opportunities. So what are they to do?

Many turn to factoring, an alternative to bank lending that provides businesses with capital on a flexible basis that is proportional to sales.  The factoring “line” grows as the sales to credit worthy customers increase, giving clients an opportunity to capitalize on market opportunities.

As a business owner, have you ever been in a situation where you were waiting on a check from a very large job that was needed to cover expenses? Even the healthiest of operations sometimes find themselves in this situation. That was the case for a Canadian-based oilfield construction company who was referred to Calgary’s Liquid Capital.

At the time, the company was just over a year old and struggling to stay afloat after the bank refused to provide an operating line. The owner wondered if his business would survive 30 more days without payment while still having to cover payroll, diesel for his trucks and lease payments. Only 5 days after hiring Liquid Capital, the first deposit was made to his bank account – allowing him to make the necessary payments.

The following year, the same company watched their sales quadruple as they took advantage of the planning opportunities Liquid Capital provided. Today, they continue to use Liquid Capital and report annual sales of $4.5 million. They have come a long way from the company questioning if they could pay their employees.

Factors have fought a stereotype for years, one that assumes they are a last resort or the business equivalent of payday lending. In reality, factoring is a cost effective, flexible and responsive form of trade financing that allows clients to grow and prosper in all conditions. 

If you have an opportunity to grow your business and you don’t have capital available, competitors can take your market share or you can miss out on a great job and even a payroll. If that’s the case, what is capital worth?