COMPANIES HAVE TO “EAT” TOO
Liquid Capital came to the table with an A/R (accounts receivable) factoring solution in less than a week and delivered initial funding in less than two.
Founded in 2003, ENC (Eating New Creations) is a food services company committed to supplying hotels, airlines, cafeterias and a range of institutions with high quality, pre-made, gourmet sandwiches. And that’s exactly what it was doing – until the loss of its main source of capital threatened the company’s viability.
In its early years, ENC’s founder focused on making the best sandwiches possible while a corporate partner provided the line of credit that fed the company’s working capital needs. When the partner left – taking the line of credit with him – the company was left with $2-3M in locked-in yearly sales, but no money to manage day-to-day operating costs and no staff with the time to source appropriate financing. Client payments were on a 30 to 45 day schedule, but ENC had to purchase raw ingredients every day or two while managing a weekly salary cycle.
Receivables in the pipeline but an immediate working capital shortage? – the situation was ripe for a factoring solution. But how was a busy company with limited resources going to find and implement the right solution from the right company? The first step was bringing in a CFO who understood the issues – and saw the future.
“ENC HAD SIGNIFICANT ISSUES IN AREAS SUCH AS CASH FLOW AND EMPLOYEE HEAD COUNT, BUT ONE OF ITS KEY SUPPLIERS SAID THAT IF THESE PROBLEMS COULD BE RESOLVED, THEY’D BUY ENC. THIS WAS A GREAT OPPORTUNITY, BUT AS NEW CFO, I HAD TO KEEP THE COMPANY GOING UNTIL THE APPROPRIATE CHANGES COULD BE MADE AND THE SALE EFFECTED.”
Robert S. Kheir, Principal, Interim CFO, ENC
A/R FACTORING: SHORT-TERM LIFELINE FOR LONG-TERM SUCCESS
The fact was, ENC was a few weeks away from possible creditor protection. It was having trouble meeting payroll, and the financials did not support getting a Tier 1 bank loan. A creative solution – outside the typical financing sphere – was required.
Rob Kheir, the interim CFO brought in to execute on turnaround, was familiar with Liquid Capital from his time as an investment banker and was hearing rave reviews about their capabilities. “ENC was in a difficult situation, and I needed cash real quick – I’m talking days, not weeks or months.”
Liquid Capital came to the table with an A/R (accounts receivable) factoring solution in less than a week and delivered initial funding in less than two. Under the solution, Liquid Capital would purchase and manage ENC’s accounts receivable, providing the company with critical working capital in the form of an initial $250,000 facility.
ENC was often issuing 400 to 500 invoices per week to as many as 20 different customer accounts. The sheer volume and relatively small size of these invoices presented a significant factoring challenge, but ultimately, Liquid Capital factored approximately $2.4M in invoices over 70 fundings – which worked out to funding ENC roughly twice a week.
“LIQUID CAPITAL FACTORED ENC’S ACCOUNTS RECEIVABLE FROM APRIL 2014 THROUGH FEBRUARY 2015. IT’S FAIR TO SAY THAT IF THIS SOLUTION HADN’T BEEN BROUGHT ONBOARD, ENC MAY WELL HAVE HAD TO CLOSE ITS DOORS.”
Robert S. Kheir, Principal, Interim CFO, ENC
THE BENEFITS OF A/R FACTORING GO BEYOND SIMPLE FINANCING
Of course, the core benefit of A/R factoring is that companies acquire working capital that they need – sometimes desperately. But factoring solutions also address a frequent business challenge: lack of follow-up on existing invoices.
When businesses – especially small, under-resourced ones– don’t collect receivables on time, their ability to meet their payables becomes compromised.
Liquid Capital can help address these and other management issues. For instance, by reviewing receivables regularly, Liquid Capital can help companies determine which customers are truly valuable – that is, which always pay, which usually pay, and which are not paying and to whom delivery could potentially be stopped. By relieving companies of the pressure of managing their collections, A/R factoring also enables them to focus consistently on their products and services.
“SOME PEOPLE INITIALLY BALK AT LIQUID CAPITAL’S INTEREST RATES, BUT THEY ARE FAILING TO TAKE INTO ACCOUNT THE COST OF HIRING A FULL-TIME ACCOUNTS RECEIVABLE CLERK TO STAY ON TOP OF CASH COLLECTION. ONCE YOU RUN THOSE NUMBERS, THE VALUE PROPOSITION MAKES MUCH MORE SENSE.”
Robert S. Kheir, Principal, Interim CFO, ENC
ENABLING THE NEXT PHASE
From being on the verge of padlocking the doors to being successfully purchased by a $14B multi-national conglomerate in just one year, ENC’s story is a testament to the value a factoring solution can deliver in the right circumstances. ENC had a good business and a promising growth trajectory that was aligned with its market, but management around costs, collections and efficiencies was lacking. With A/R factoring providing financial support during the restructuring process, the company was saved, jobs were preserved and a multi-win transaction was completed.
“LIQUID CAPITAL’S SERVICES PROVIDED THE BREATHING ROOM REQUIRED TO PUT SECURE FOUNDATIONS IN PLACE TO UNDERPIN THE COMPANY’S FUTURE GROWTH. WHEN THE BIG BANKS COULDN’T HELP—LIQUID CAPITAL WAS THERE.”
Robert S. Kheir, Principal, Interim CFO, ENC
