SOLVING THE “PROBLEM” OF RAPID GROWTH
When it comes to identifying a company’s problems, rapid growth rarely makes the list. However, for E-Systems Corp., an electronic contract manufacturer headquartered in Chelmsford, Massachusetts, high growth actually presents an ongoing business challenge.
The issue began in 2014 when the company was initially formed through the acquisition of selected assets of Proto-Pac Engineering. After renaming the company E-Systems, the new owners began the laborious attempt to fill the previous company’s huge backlog of orders – which was hovering at almost $1 million. Despite having booked orders, E-Systems lacked the funds to buy the supplies it needed to manufacture the ordered product.
Because the company was considered a new entity, rather than an already-operating company, it didn’t qualify for traditional bank financing. And the owners were not willing to give up equity to attract additional capital. That left them to consider alternative forms of financing and – after considerable research – they decided factoring was the best way to go.
“ONCE WE DECIDED WE NEEDED TO FACTOR, WE LOOKED AT SEVERAL FACTORING COMPANIES. I ADMIT WE STARTED WITH A COMPANY OTHER THAN LIQUID CAPITAL, BUT AFTER ONLY ONE DAY IT WAS CLEAR WE’D MADE THE WRONG CHOICE. SO WE ASKED LIQUID CAPITAL TO STEP IN. TO THIS DAY, THAT’S ONE OF THE BEST BUSINESS DECISIONS WE’VE EVER MADE.”
Ron Finlayson, Chief Executive Officer & Chairman, E-Systems Corp.
CLOSING THE CASH FLOW GAP
With a strong portfolio of credit-worthy business to business invoices, E-Systems is a prime candidate for Liquid Capital’s A/R factoring solution. In an attempt to maximize its steady cash flow, the company decided to run every receivable it could through Liquid Capital. That translates to it receiving between $85,000 and $125,000 of funding each month.
While the majority of the financing goes to pay suppliers to deliver on its orders, E-Systems has also used the funds for payroll – which it’s committed to delivering to its manufacturing facility employees at noon every Wednesday. Liquid Capital’s flexibility means E-Systems can often get advances on its receivables at the last minute, ensuring it never experiences a cash flow shortfall.
Despite the benefits, however, E-Systems did have an early concern: it was uncomfortable with the idea of giving Liquid Capital’s collections group access to its customers. With A/R factoring, Liquid Capital buys its clients’ invoices, which means it needed to contact E-Systems’ customers to let them know to pay Liquid Capital directly. Understandably, E-Systems wanted assurances that its customers would be treated professionally.
“YOU WORK REALLY HARD TO GET CUSTOMERS. IF YOU COLLECT A PAYABLE FROM THEM IN A MEAN OR INSENSITIVE WAY, YOU CAN LOSE IN FIVE MINUTES WHAT MIGHT HAVE TAKEN YOU FIVE MONTHS TO WIN.”
Ron Finlayson, Chief Executive Officer & Chairman, E-Systems Corp.
“You work really hard to get customers,” explains Ron Finlayson, Chief Executive Officer & Chairman of E-Systems. “If you collect a payable from them in a mean or insensitive way, you can lose in five minutes what might have taken you five months to win.”
Fortunately, Liquid Capital’s approach to customers is demonstrably respectable and kind. “If you’re thinking of factoring, you need to understand who will be talking to your customers,” Finlayson asserts. “If you don’t want a hard push, check out what their message is and ask how they handle it if someone can’t pay on time. This was really important to us, and I’m pleased to say that the people handling Liquid Capital’s collections are genuinely nice.”
FUNDING FUTURE GROWTH
As a company that provides services and supplies products to major U.S. defense contractors, health care device manufacturers, and the entertainment and consumer electronics industries, E-Systems expects to remain on a high growth trajectory for years to come. It also expects Liquid Capital to continue playing a pivotal role.
“I can’t imagine a time when factoring won’t make sense,” Finlayson admits. “Whenever a company is growing, it will experience cash flow anomalies. Factoring helps us reduce the time delta between paying our suppliers and getting paid by our customers. It provides us with the up-front cash we need to finance our growth.”
As an added benefit, E-Systems’ relationship with Liquid Capital’s principals goes well beyond mere financing. E-Systems’ owners view their Liquid Capital principals as advisors and part of their team. They turn to them for business advice that extends far beyond factoring. In truth, they have become critical business partners. “Our Liquid Capital principals are smart, have excellent judgment and always keep our company’s best interests in mind,” says Finlayson. “I honestly believe that factoring can benefit virtually every company that’s in a growth mode.”
“GROWING COMPANIES CONSUME CAPITAL VORACIOUSLY. ANYTHING THAT DELIVERS MORE CAPITAL TO FUND FUTURE GROWTH IS GOOD, AND TYING THAT CAPITAL TO INCREASING REVENUES IS NOT ONLY MORE PREDICTABLE, BUT IT’S A HEALTHIER BUSINESS CHOICE AS WELL.”
Ron Finlayson, Chief Executive Officer & Chairman, E-Systems Corp.
