When dealt a royal opportunity, Andy Silberman
used to fold.
It’s not that the CEO of
Suburban Mechanical Inc.
lacked the ambition or savvy to
cast his reel when the big fish
began to bite; instead, he lacked
the bait to catch them in the
first place.
As an installer of heating and air
systems, Suburban could grow
only as fast as its oft-delayed
and unpredictable cash flow
would allow. While Silberman’s
billings were on the rise, he
couldn’t collect on invoices fast
enough to take on that next
large project or contract.
“I’m dealing with my 30-day
accounts on the payable side,
and I’m unfortunately dealing
with builders who, through no
fault of their own, are not often
paying in 30 days and are taking
longer,” he says. “It’s not them.
It’s the bank draw; it’s their customer, etc.”
Silberman wasn’t willing to
point fingers, but he also wasn’t
content to leave his company’s
fate to chance. Instead, he
approached his conventional
banker and began to take out
traditional loans.
“I applied for a loan and the
credit was fine and everything
was good,” he says. “We got
what we needed. But I also
voiced concern about borrowing
more than I needed … to seize an
opportunity as it came up from a
customer. While I thought that
was possible, we’d have interest
payments and we’d have a liability that I was hoping there was
an alternative to.”
That’s when his banker suggested a process called factoring.
Factoring is a way for a business to speed up its cash flow.
Instead of waiting for a customer to pay an invoice, a business sells its accounts receivable
in return for an immediate cash
advance based on a percentage
of that invoice. The factor then
collects on the invoice on behalf
of the client and makes an additional payment to the business.
Though the process is a legitimate alternative to traditional
lending, it can carry a stigma
that is often associated with
third-party collection services.
Silberman says you can allay
any concerns from vendors or
customers by simply educating
them about the process.
“It’s giving a little more detail
to them about the workings of my business,” he says. “It
brought about questions from
my builder: ‘Is your company
healthy? Is there something we
need to know about?’ Then I
would say, ‘No, absolutely not.
This is an option that was presented to me. I had an opportunity to partner with (a factoring
company) to take care of some
cash flow issues,’ while I
elbowed the guy I’m talking to
and say, ‘You can relate to that,
can’t you?’
“It’s no secret that however
healthy, however large or small
the company is, cash flow is
always a concern. Your profit is
one thing, but your cash flow is
what you pay the bills with.”
After such conversations,
Silberman says his customers
left not only reassured but also
with an itch to investigate the
process for their own companies. At the same time, he was
able to sit back and reap the
unanticipated benefits of the
collection aspect of the service.
“When you enter into a factoring program, you’re not only
getting your cash flow boosted,
you’re also utilizing the service
of a professional on the collection side,” he says. “When you
enter into an agreement with a
customer you don’t know, it’s
very beneficial to have the factoring company on your side
because then they actually help
with your customers’ credit
investigation and the end collection, as well.”
If nothing else, factoring will
finally give you the bait to catch
those big fish, he says.
“It gives you the opportunity
to, without going through the
traditional loan process, to seize
an opportunity that you might
otherwise think you need a loan
for,” Silberman says.
HOW TO REACH: Suburban Mechanical Inc., (800) 840-0402
Do you factor into factoring?
When Andy Silberman, CEO of
Suburban Mechanical Inc.,
decided on factoring as an alternative to traditional loans, his
banker pointed him in the direction of John Doucette, president
of Liquid Capital of Northeast
Ohio. He’s been providing the
service to Cleveland- and Akron-area businesses for years, and
he’s identified the following
questions every executive should
ask before seeking factoring.
Are you eligible for other
financing? “This is intended as
sort of a transitional financing
solution,” Doucette says.
“Obviously, you would have
wanted to have looked at other
alternatives first. Our typical
customers or clients are businesses that don’t qualify for
bank financing. That’s usually
because they’re too new.
“The company hasn’t been in
business for three years or
they’ve got credit challenges of
the business or of the owners of
the business. That’s becoming
more an issue in the recent
months for obvious reasons.”
Do you need extra capital to
grow your business? “Once you
say, ‘I need capital to grow my
business to cover operating
costs, but I’m not getting paid
quickly enough by my customers,’ then you can look at
factoring as a way of accelerating that cash flow.”
Does your business model fit
the service? “The question then
gets down to, do you have a
business model that fits that?
Are you invoicing other businesses? Are you constrained by
waiting to get paid? Do you
have enough of a margin in
those transactions for this to
make sense?”
HOW TO REACH: Liquid Capital of
Northeast Ohio, (440) 734-3321 or
www.lcneo.com
