MP Star invoice factoring case study: Factoring helps freight company beat cash flow problems

If you eat it, wear it, use it, read it, or just plain have it…it probably came to you on a truck.

The freight business is fairly steady, but there are a lot of expenses involved – fuel, insurance, permits, equipment, payroll, taxes, tolls, maintenance…and on and on.

And even the best companies can run into cash flow troubles.

The Lima, Ohio-based freight broker had been in business almost three years, building a fairly impressive client list along with a reputation for exceptional service.

The members of a young but aggressive management and sales team were optimistic about the future. The company was gradually picking up regular routes stretching farther to the west, and was considering buying out two competitors that would open up heavy traffic to Georgia, the Carolinas and Florida.

The Cash Flow Problems: “Perfect Storm” – a Spike and a Strike

While the company was, from a day-to-day perspective, doing well, it was not so secure that it could withstand a major hiccup in its cash flow. And it certainly couldn’t handle two hiccups.

“We had spent a lot of money over the previous year,” said the company president. “We added staff and moved to a bigger office, which almost tripled our rent. Looking back, we could have been more conservative, but business was encouraging, and we really believed in our growth and expansion plan.”

“That’s when the ‘perfect storm’ hit us,” he said.

That ‘perfect storm’ came fast and hard, and from two places:

1. A spike in fuel prices. Severe weather shut down several refineries in Midwest, creating almost immediate fuel shortages and higher costs. (Prices had been climbing anyway, due mostly to a weaker dollar that had made imports of crude oil more expensive.)

2. A strike at a major customer. A labor strike across three manufacturing plants meant that orders for raw materials – usually shipped by the Lima company – were cancelled or postponed. No shipments meant no revenue from an account that represented about 20 percent of the company’s sales.

The bottom line – if nothing changed, the company could run out of cash in fewer than 60 days.

The MP Star Financial action to boost cash flow management

So what to do?

The options didn’t appear very good. The company could lay off workers, but that would hurt morale and look bad to outsiders. A bank line of credit, even if it could be secured, might take weeks to arrange and would be expensive.

The company’s president called MP Star Financial for advice. He talked about his cash flow problems and asked about invoice factoring as a possible way to weather the storm.

It turned out that the freight company did have enough outstanding invoices – from companies not impacted by the strike – to meet its payroll and other operating costs. The problem was that many customers would take 40 to 60 days to pay an invoice.

MP Star arranged to factor most of the outstanding invoices. More than 80% of the receivables were in the company’s bank account within just a couple business days.

The Result

The cash infusion made it possible to survive the strike and figure out a plan for dealing with the higher fuel costs. Company operations continued uninterrupted, relations with customers were unaffected, and business resumed as usual when the strike finally ended.

Plus, the company came to enjoy the conveniences provided by invoice factoring. “We still factor with MP Star today,” said the company president. “Having the cash up front makes a huge difference for us, and our entire receivables process seems to run much better.”

As a bonus, the accelerated cash flow makes it possible for the company to pre-pay most of its fuel expenses, providing a hedge against unanticipated price increases.

“We sort of found factoring by accident,” said the president. “But for a growing company that wants fast access to its cash and that doesn’t want to take on more debt, it’s a great option.”

For more MP Star Financial invoice factoring case studies:

Business Case Study: Invoice factoring leads to IRS tax settlement

Business Case Study: Invoice factoring helps new company get over the start up hump

Business Case Study: Invoice factoring helps company win major contract

Business Case Study: Invoice factoring partnership boosts company’s exports

Business Case Study: Invoice factoring works when business is good…but cash flow is terrible

Business Case Study: Invoice factoring makes corporate buy-out possible

If unexpected business problems outside your control are hurting your company, MP Star Financial may be able to help. Call MP Star Financial for more information about invoice factoring and cash flow management at (800) 833-3765, extension 150.


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