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Keep Suppliers Happy and the Cash in Your Pocket

Part 4 in the Cash Cycle series: Using PO Financing to get faster shipping.

cash cycle

Sometimes suppliers demand that you pay for your orders in advance or at the point of shipment.

What if you don’t have the money to pay up front? You might have a letter of credit so they’ll start the order, but what if you can’t get that either? Will they ship your goods?

How to get suppliers to ship your goods

Purchase Order Financing (PO Financing) helps you close the gap where suppliers are not providing adequate – or any – terms. By extending the number of days you have to pay your accounts payable, you can keep cash in the company and effectively increase your working capital. This financing option will also improve your cash flow, and your cash conversion cycle (CCC), which can help you meet supplier terms.

In normal circumstances, you might have to wait 30, 60 or 90 days to collect on your sales (DSO = 30, 60 or 90). But a supplier may demand that you pay immediately before they will release your shipment (DPO = 0). If you don’t have significant working capital on hand, this leaves a serious gap. (More on these figures in a bit.)

As you’re stuck waiting to collect on your invoices, you’re still managing the ongoing costs of running your business and your shipment might not be released. Unfortunately, you’ll never be able to meet supplier terms without finding an alternative solution.

PO Financing can extend your cash cycle and help get your product shipped. When you receive a PO from your customer, you place that with your supplier. As your financing partner, Liquid Capital would then provide your supplier with a letter of credit and they would release the shipment. Your customer invoice is then generated.

With PO Financing, businesses often use factoring to obtain faster payment on their customer invoices once they are generated, so that they can take advantage of both solutions at once.

Example Scenario: Financing the cost of the product

The Gregory twins have been running their online retail venture the past

couple years, selling car and truck accessories to the enthusiastic custom

car community. Their suppliers are located across North America and overseas, so shipping is a big concern for the duo. Their business is growing, but their cash flow is still struggling. It’s tough to get supplier payments, orders and payments to align.

Currently, their main overseas supplier requires payment at the point of shipment for a large order ready to leave. Once the parts are on the boat, they’re considered sold to the Gregory brothers – and time begins ticking – but the duo are cash-strapped and can’t pay the entire invoice. They’re in dire need to get the parts in their customers’ hands, as customer invoices usually take at least 35 days to be paid.

Fortunately, they have major customer orders with supporting POs, and Liquid Capital assists by supplying a letter of credit to the supplier. Liquid Capital finances the Gregory twins’ product costs until the order is delivered to the customer, which takes 12 days to arrive. They’ve secured not only payment, but breathing room.

And by factoring their receivables, they’ll now only have to wait 5 days to see cash flow improve from their customer invoices

CCC = 60 – 0 + 35 CCC = 60 – 12 + 5
CCC = 95 days CCC = 53 days

Improved cash cycle by 42 days

    (Get the full cash cycle formula and descriptions here.)

What is the end result?

With PO financing alone, the Gregory brothers shorten their cash cycle by 12 days. That means they will convert inventory into liquid cash almost two weeks faster.

If they also take advantage of factoring their customer invoices, they could shorten by 30 more days, so their cash cycle is dramatically shortened. That’s a big difference from the three-month timeframe without financial support.


Get more information on the cash cycle, how to calculate it and strategic tactics for your company:

Part 1: How to Determine Your Company’s “Cash Conversion Cycle” 

Part 2: 7 proven cash flow tactics every CFO needs to know          

Part 3: Leverage your assets to grow your working capital


Do like the Gov – Follow these Best Practices in Crisis management as shown by Florida Gov. Rick Scott

In the days leading up to Hurricane Irma’s arrival and subsequent to its landfall, Florida Governor Rick Scott gave the world and especially those of us who live in the state, a brilliant display of leadership as he commanded and corralled government and local forces to prepare for the potentially catastrophic arrival of the storm to Florida. Scott will certainly go down in state history for how aptly he handled the situation, and in the process, saving thousands of lives, millions of dollars, and significantly reducing potential damage to residences and commercial properties, and to the State as a whole. If you and your business ever find yourself in a crisis situation, you would be well advised to follow the best practices demonstrated by Gov. Scott, to mitigate risk and reduce potential damage to you and/or your business, in the event of an expected crisis.

Faced with a crisis in your business, “do like the Gov” and follow Rick Scott’s outstanding examples of leadership by doing these three things:

1. Get out in front early, step up and take charge – at least one week leading up to the predicted landfall on the Florida peninsula, Gov. Scott began holding multiple daily press conferences, warning state residents to get into “Hurricane Mode” – and begin stocking up with water, food staples, emergency lighting, boarding up homes and commercial properties, and even laying out evacuation plans for areas to be hit by the storm. He stepped up early and took charge, 1st by declaring a state of emergency, and then by marshaling federal, state, local and even private entities like the Red Cross, to begin making plans for the arrival and the subsequent damages a Category 5 (at the time) hurricane posed to his state. As a result of his efforts he saved thousands of lives and reduced dramatically potential damages to the state, its residents and their businesses. In your business, the moment you identify a potential crisis, whether it be related to product, a customer, your finances, a PR situation, or whatever it may be, follow the Governor’s great example and get out in front of it early, stepping up and taking charge and by doing so, proactively manage your responses, and those of your teams and key decision makers, to take immediate and decisive action – and do it early.

2. Communicate – constantly, and most importantly, consistently.  In the days leading up to the storm, Gov. Scott was constantly seen on local and national television, communicating the exact same message – he talked about the most important perils of the hurricane, namely storm surge, wind damage, and flooding. All the while making comparisons to Hurricane Andrew, another Category 5 Florida Hurricane which hit doing massive damage passing directly over the city of Homestead in Miami-Dade County, destroying more than 60,000 houses, damaging another 124,000, killing 65 people and leaving in its wake more than $26 billion in damages in 1992. He did this in an attempt to create a precedent for the full understanding of the potential severity of this storm to Florida residents. He showed images of the destruction created by Andrew with the hope of reinforcing the life-threatening situations Floridians who failed to heed his warnings would be facing. But most importantly, Gov. Scott communicated the exact message, over and over again, multiple times a day, so that all residents understood the full extent of the potential damages of this storm. He outlined options – from evacuation plans for areas most likely to be hit the storm as sell as low lying areas susceptible to storm surge, to “Hurricane Preparedness” for residents to guarantee they had the essentials of food and water in the case of extended power outages. Gov. Scott was a true champion in that his message was always the same – he stressed taking the situation seriously, following directions – even if that meant evacuating your home – to avoid further casualties, and he stressed “get ready”. His message was clear, focused, consistent, and constant. No one in the state of Florida had the excuse to not be warned nor be ready for the impending storm.

In your business when faced with a crisis, handle it like Gov. Scott – communicate frequently, openly, and repeatedly, to all the most important constituencies in your company. Make sure your message is consistent – and provide updates as the situation unfolds. People need to be informed, and will generally act responsibly and intelligently if given the information they need to govern their own decision-making.

3. Shoulder up adequate resources to meet immediate and changing needs of key groups – Responding to the threat, preparing for the arrival, and organizing the recovery from the damage a hurricane the likes of Irma causes is nothing short of a massive undertaking! It takes the coordinated effort of hundreds of organizations ranging from Federal, state and local governments, local law enforcement, FEMA (Federal Emergency Management Agency), local and national broadcasters, emergency response teams, utility service providers, retail establishments, schools, hospitals, non-profit organizations, etc. the list goes on and on.

But the key point, and illustrated so brilliantly by Gov. Scott, was that he went to great lengths to involve any and all organizations critical to providing the services that would be required in the aftermath of a hurricane.  In nearly all his press conferences, he could be seen surrounded by the different groups that would be involved in providing help and services after the hurricane struck – the national guard, local police organizations, the Red Cross, the emergency response headquarters set up in major cities like Tampa or Miami. He was a master of shouldering up all the critical resources to making sure recovery would happen as quickly and as smoothly as possible.

In a similar manner, when faced with a crisis in your business, make sure you know who to call and what resources you will need to manage the risk created by the crisis. This will require some advanced planning on your part, and will also involve asking some tough questions related to potentially difficult situations, like anything ranging from an unexpected death, employee harassment or firing, lawsuit, bankruptcy, or product recall. But do your homework upfront, and make sure you have all the necessary resources to weather the storm and clean up in its aftermath.

Go here to see Governor Scott in action…

Florida Governor Discusses Irma Preparations

Recent funding illustration

Recent Fundings – October 2017

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How to build one of the best sales teams in the world


“Coming together is a beginning. Keeping together is progress. Working together is success.” –Henry Ford

Team building is an ongoing process for large and small businesses alike. The right team can be the difference between success and failure, or scalability and stagnation.

Sales people are empowered entrepreneurs, but they can also build a team around them to support their professional and personal goals — and that approach can help them strategically fast track their next moves. Let’s take a look at how the right approach to team building is just as important to growth as the right working capital.

Great leaders build great teams

“Rome wasn’t built in a day,” and it sure as heck wasn’t built by one person.

Great leaders are the lifeblood of great teams, but that doesn’t happen by accident. So it helps to understand the ways in which teamwork is literally wired into our brains.

There is a fundamental importance of rewarding your team’s ‘collective success’ versus just the ‘individual performance.’ Psychology Researchers and Neuroleadership experts Jay Van Bavel and Dominic Packer revealed in the Harvard Business Review why focusing on collective success makes all the difference.

“Although leaders are concerned with collective success, most organizations — from sports teams to universities to global companies — still focus on rewarding individual performance. The majority of Fortune 500 companies reward the most productive individuals, not the most effective groups or indispensable group members. We believe that leaders at these organizations are overlooking something fundamental about human nature — our tribalism.”

Buck your traditions

Van Bavel and Packer led their research with an example of a nearly 50-year old Ohio State Buckeyes football tradition — and it’s the reward system behind all those Buckeye stickers on players’ helmets (you know, the ones that look like little hemp leaves — both amusing and beneficial).


So what’s the story behind this?

In 1968, the Buckeyes coaching staff wanted to reward exceptional plays and encourage their team to keep winning — and so a new tradition began. Individual players were rewarded with Buckeye stickers to place on their helmets — a visible reminder of their success. The system paid off in spades, and the team won the championship that year. They continued a dominating streak in the league, but it wasn’t ever lasting. Over the next few decades, the system was failing and the team was, too.

In 2001, a new head coach flipped the way players earn Buckeyes. Instead of their old system of rewarding a player for scoring a touchdown or other individual victory, every player on the offensive unit would get a sticker if the team scored more than 24 points.

The purpose? The idea of favoring teamwork over individual performance was the real goal. And it paid off almost immediately. The team not only won a national championship the following year, but the Buckeyes have been one of the most successful teams in the country ever since.

Your team members want to fit in

Belonging to a group is a deeply rooted aspect of who we are as individuals. Van Bavel and Packer further explained how managing this mentality is a major role that leaders will play.

“Great leaders are “entrepreneurs of identity.” They embrace our tribal nature and seek to shape the identity of fellow group members,” they elaborate. “Human beings evolved in groups, and most of us still work in groups every day. … This is why sports fans can show up to a stadium and immediately share a common purpose with 100,000 complete strangers.”

That might be the case at a sports stadium, but how about at the workplace? The researchers clarify that it is quite similar.

“When a person starts to identify with a group, it triggers a fundamental shift in their goals. Events and decisions that were once evaluated with reference to oneself (“what’s in it for me?”) are now evaluated in reference to the group (“what does this mean for us?”).”

That shift to a healthy team mentality is one of the most important psychological breakthroughs a company can have.

Does your team feel safe?

What’s more, business leadership expert Chee Tung Leong illuminated the fact that today’s average lifespan of an S&P 500 company has fallen from 67 years to just 15 years.

“The marketplace is much more unforgiving towards companies that take too long to learn their lessons,” Leong explained. Creating a culture of learning at your company is key to success.

As entrepreneurs, we talk a lot in business about the virtues of bold thinking and risk taking, but what Leong uncovered while studying team dynamics at Google, is that you must create an atmosphere where people feel comfortable taking those bold chances.

Chief among these key dynamics was this idea of ‘psychological safety.’ To build the best teams in the world, Leong explains that “team members needed to feel safe enough to take risks and be vulnerable in front of each other.”

“While self-preserving behavior is natural in the workplace, it can erode the foundation of effective teamwork.” This can damage the culture you are trying to build – where team members can learn from one another. “The safer team members feel with each other, the more likely they are to collaborate, admit mistakes, and take new opportunities.”

Leong advocates building the culture of psychological safety on your own teams through three fundamentals:

  1. Encourage failure
  2. Admit your own mistakes
  3. Hold “anxiety parties”

The latter, while admittedly unconventional, allows team members to openly share things that make them feel vulnerable and anxious, allowing for immediate 360-degree feedback with the team. Leaders can then address issues head-on and avoid wasting time on assumptions about the team’s feelings — instead, focusing on the real problems at hand.

Transform your clients into your teammates

Taking this strategy a step further, as a leader you can encourage your team to look outside the organization. Sales experts Barry Farber and Robert L. Shook argue that one of the most effective yet overlooked sales techniques involves teaming up with customers.

“Outsource your customer. Let the customer solve problems for you,” explains Shook and Farber. “A salesperson’s job is to create a vehicle that lets the customer solve his or her own problems.”

This out-of-the-box thinking can take your sales organization to a new level. “When a customer becomes involved in finding a solution to his problem, he or she takes ownership, which is the foundation of a solid salesperson-customer relationship.”

At the end of the day, a winning teamwork philosophy is one that encourages both parties to work together to solve a mutual problem. The best teams are as unique as you and your company, and making these proven team building concepts parts of your company’s direction will serve everyone well.


Thrive! Small Business Convention

Liquid Capital Funding Solutions (LCFS) is excited to be exhibiting at this year’s Thrive!  This is the annual small business convention for the Arizona Small Business Association. Stop by our booth, say hello, and let’s discuss how we can help your business prosper.

Date: October 12, 2017
Time: 12:30pm – 6:00pm
Where: Events on Jackson
245 E. Jackson St.
Phoenix, Az., 85004

Click here to register.

This will be a great opportunity to collaborate with other businesses. Bring plenty of business cards.

Additional Events for LCFS:

  • May 8th 2018 – Jeromy Cushing will be presenting at the Corporate Companion Speaker Series hosted by Keystone Business Consulting, LLC
  • More to come!
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What is Fintech Stacking & Why You Need to Avoid It

Why unsecured loans are eating away at many company’s bottom lines.

fintech loans

It seems like a less than savoury business practice – companies resorting to fraudulent activity to access tens or hundreds of thousands of dollars, often just to cheat the system. Taking out multiple online loans from new fintech companies who offer almost-instant cash, borrowers prey on a new financial system based entirely on unsecured loans.

This is “loan stacking,” and it’s hitting the fintech industry hard. The bigger problem is that it’s also crippling the companies in need of real funding.

What is loan stacking?

According to the Lending Times, loan stacking occurs when a consumer secures multiple loans of the same type from different financial institutions – and it is also one of the main types of financial fraud. This is an obvious problem for the lenders, but also a highly risky game for the borrower.

Although reputable business owners may indeed be shopping for multiple loan options, most stacking is associated with being intentionally deceitful. In the latter case, the borrower takes advantage of time lags in the credit bureau reporting, with no intention of paying the lender back.

In fintech, this issue can be exacerbated, since their “soft credit checks” and online loan approvals typically take less than 24 hours – not enough time for a lender to realize the borrower just requested similar loans from other institutions. Between 2013 and 2015, such occurrences in the market nearly doubled, causing fintech underwriters to ring serious alarm bells.

Why are some businesses stacking loans? And are these people really criminals?

According to a recent USA Today article, only one in five small business owners in need of financing will get approved by a traditional bank. According to Nonso Maduka from the financing comparison website NerdWallet, “that leaves 80% who can’t get funding from a traditional bank source, even though that’s likely the lowest cost.”

If traditional bank loans aren’t an option, these companies will be forced to look elsewhere and find creative solutions to their funding woes. Maduka goes on to explain some of the major challenges forcing companies away from the traditional system. “If you’ve gone through the process of applying for a bank loan and aren’t eligible, you haven’t been in business long enough, the amount of money you’re requesting is less than $500,000, if you’re thinking about speed, or just need cash in order to keep moving, an alternative lender might be a good option.”

After the 2008 crash, business funding dropped dramatically, making access to that capital much more challenging. And by 2014, the number of loans was down nearly 60 per cent from its peak in 2007, according to the Woodstock Institute’s report on small business lending.

It’s apparent that there’s a massive need for funding in the business community – to grow more rapidly, hire employees and make investments. But there’s an equally apparent shortage of options for many companies, forcing them to get creative.

That doesn’t mean that all companies obtaining multiple loans are deceitful – far from it. There are countless hardworking, honest business owners that are in search of higher working capital to keep their companies afloat and growing in the right upward direction. And obtaining multiple loans is possible if you’re being transparent with the lenders. But stacking loans is not a viable solution.

The true offenders are the “borrowers” intentionally preying on this system, posing as credible business owners. This could have the adverse effects of raising fintech costs, slowing down lending cycles and making it even more challenging for legitimate borrowers to access capital in the future.

The astronomical costs of fintech loans: Are they to blame?

For the fortunate business owners that can access traditional loans or leverage their personal assets including home equity, property or other investments, finding cash flow may not be the biggest issue. But when these options aren’t available, other businesses may turn to fintech and other unsecured loans – supported by creditworthiness, rather than collateral. The Globe and Mail pointed to discussions at The Future of Lending Now conference, which stressed that unsecured fintech lending, “opens the floodgates to increased risk of fraud and more personal and business bankruptcies.”

Taking on fintech or other unsecured loans can get businesses out of sticky financial situations, but they aren’t long-term solutions. Most unsecured loans like credit cards, revolving loans, personal lines of credit, payday lenders and merchant cash advances come with steep interest rates to protect the lender. For business owners, stacking debt and taking on multiple loans to hit their desired level of capital, the impacts can be shockingly unexpected.

Even though obtaining such a loan could bring immediate relief, Woodstock Institute cautions against such activity, citing dissatisfaction from those same borrowers. In fact, their study found that, “high interest rates, onerous terms, and relatively poor customer service are unfortunately common among such providers.”

368% interest rates

Looking directly at the hard numbers, Woodstock Institute’s analysis found that the interest rates for such fintech loans can start at 26% and go up to an astronomical 368%. Compare that to the current traditional bank loan in the range of 6.5 to 9% and you’ll see why dissatisfaction amongst borrowers could skyrocket.

This is where stacking and refinancing really becomes a problem. When a company is in that deep, the problem has become how they’ll pay off such exorbitant interest rather than paying down the original debt. The focus shifts away from their business operations and strategy – the original intention of the loan.

Opportunity Fund, a US-based non-profit lender and organization tackling economic inequality, also offers “microloans” to business owners in need of assistance – including those that have been handcuffed by their fintech loan. In fact, after analyzing 150 of businesses needing refinancing on their fintech loans, they found the companies were paying an average interest rate of 94%, with a high of 358%. The average monthly payment on those loans was 178% of the borrower’s available net income. This leads to financial instability for the business and their personal assets. “Every month these borrowers owed more to the lender than they had available from both business and personal net income.”

Multiply that disastrous impact even further if a business was stacking their loans or taking on multiple fintech debts, and that could spell complete financial ruin and bankruptcy.

Better funding options to avoid the pitfalls

Avoiding high interest and unsecured loans altogether is one option that some business owners have taken.

That’s where financial products like Asset-Based Loans (ABL) enter the picture and fill a much-needed gap. For companies who don’t meet the qualifications of a traditional bank loan, or simply don’t want to go that route, they can obtain a loan or line of credit that is secured against their company’s assets. With such a loan, assets can include accounts receivable, equipment, inventory or real estate. Timing of ABL loans can take longer than an unsecured option, largely because of the due diligence process that reviews the borrower’s financials and collateral. However, only a week or two is needed to establish a trusted relationship with the ABL lender and access capital.

For Asset-Based Lending, funding levels are based on the value of the available company assets, and the lender will assign a loan-to-value (LTV) – a percentage that the business can borrow against. For well-established businesses, this provides much more flexibility than unsecured options. Although lending amounts are typically higher for ABL, the solution can provide the business incredible amounts of capital – sometimes up to $10 millions in funding. As for ABL rates, although they can be higher than a traditional bank loan, they are substantially lower than average fintech loans, and are far more stable.

ABL delivers a variety of additional benefits:
  • Improved customer optics – your ABL solution is invisible to the end customer
  • Leverage multiple asset categories to generate extra capital as required
  • Rates are lower than fintech loans or a pure factoring solution
  • Available borrowing amounts are typically calculated weekly (not monthly as with a bank) so if you’re in a strong growth cycle, your ability to borrow increases more quickly

But ABL isn’t the only option available.

Transform your customer invoices into quicker cash flow

For less established or smaller business, other options like accounts receivable financing (also known as factoring) can come into play. By leveraging incoming invoices, a company can gain almost-instant cash flow without the risks associated with unsecured fintech loans. In these situations, a factoring company will purchase a business’ accounts receivable and provide immediate payment, holding back a small reserve fee. Because this is a less strenuous process and doesn’t rely on company collateral, the timing is also notably faster than ABL to access capital.

The transaction can have the resemblance of a business line of credit, although it is technically a sale of accounts receivable, and in some cases the fees are even deductible. Factoring fees are typically higher than ABL, but are once again substantially lower than unsecured options with significant penalties. Since they are based on incoming accounts receivable, businesses also are not struggling to make their factoring payments, as the funds come directly out of the collections on those invoices.

When presented with both options, a company will generally lean towards ABL due to its flexibility. Either way, compared to the unsecured options and high-interest fintech loans, it is in a business’ best interest to investigate and compare all their options before taking on unnecessarily stacked levels of debt.