QUESTION: I am a local building contractor and have exhausted my bank line of credit due to customers who are waiting months after the last nail is driven to pay me. I do require a deposit for materials and periodic draws, but the final payment, representing my profit is slow in coming. What can you suggest?

ANSWER:  It is not unreasonable for customers to hold back a percentage of the job until they are satisfied the work has been completed. Your problem is inadequate cash flow. It will be helpful to construct a twelve month, forward looking cash flow income and expenses statement. You can find an excel spreadsheet on https://naples.score.org/resource/12-month-cash-flow-statement.   This will enable you to project and anticipate what your needs will be on a month to month basis.

If you have tapped out your bank line of credit, there is an alternative known as “Factoring” that may be worth considering. Factoring, in its purest form, refers to a well-practiced method of business finance in which short term debts (money owed to you) are purchased by a factoring company, at a discount to their face value. The balance is then immediately paid to you, thus eliminating your cash flow problem.

Because the debt is owed by your customer, it is their creditworthiness, not yours, the factoring company considers in granting the loan. In most cases, Factors care little if a business owner has tarnished credit or if the business itself has little or no credit history. The factoring facility will generally be approved so long as the customers of the business are varied and have a good credit history.

Factoring can also be useful to businesses operating on a cash basis. It enables them to offer terms of payment ranging from 30 to 60 days. In many cases, when terms of payment are offered, customers tend to buy more products or services.

While certainly not a household word, factoring in the United State is an enormous industry with current volume of approximately $125 billion annually. For many start up and “first stage” businesses with little access to traditional financing, factoring can provide the working capital needed for growth and business expansion. To find out more about factoring check out the INC magazine article at https://tinyurl.com/ydavj3mr

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Gray Poehler is a volunteer with SCORE Naples and can be reached at  Gray.Poehler@scorevolunteer.org. Business counseling is available, without charge, from the Naples Chapter of SCORE. Call (239) 430-0081 or visit https://naples.score.org/content/find-mentor-165 The SCORE business office is located at 900 Goodlette Road North, in the Fifth Third branch bank