MP Star invoice factoring business case study: when business is good… but cash flow is terrible

Missed payments. Bounced checks.

“You don’t think it can happen to you, and then it does,” said the owner of a now-successful catering service. “And then you’re very embarrassed and feel really stuck, but what do you do?”

A plan for smart growth…but business expenses pile-up

On paper, everything looked great.

The 40-something owner and her husband had launched the catering company as a family business almost three years earlier. They started small – church functions, modest wedding receptions, family reunions and private parties. But, as tends to happen, word of their services spread and they were asked to cater large-scale events for corporations, not-for-profits, schools, hospitals, and even a film production company.

“We were committed to a plan for ‘smart growth.’ You know…not too fast, not too slow…but just right,” she said. “We were able to work out of the house and get by with project-based or part-time workers for the first couple years. But then we were asked to bid on bigger events, with two hundred guests and a ten or 12-thousand dollar budget. We didn’t feel like we could turn them down, but that meant we had to immediately rent a place with a professional kitchen and bring on some full-time help.”

While both revenue and expenses ballooned, she quickly discovered that many clients, especially the larger accounts, tended to take up to 60 days to pay. But her payroll, supplier and other business expenses needed to be paid on time, every time.

“Everything just piled up at once,” she said. “We were booking three or four events a week, so we needed regular help. A full-time assistant. Two cooks. Servers. But we grew before we were able to establish a credit line or even bank enough money to know that we were able to keep up with payments.”

Avoiding bounced checks and missed tax payments

Sometimes working 60 hour weeks has a way of preventing you from seeing the big picture. It’s easy to become distracted.

Before she even realized what was happening, the company had missed two payroll tax payments. Three weeks later, after she had scrambled to catch up with her tax obligations, most of the company’s payroll checks bounced.

This was maddening. Business was good. Cash flow was terrible.

The Action: Coming to MP Star for cash flow management advice

The owner was referred to MP Star Financial to see if an invoice factoring program could help. She considered herself fairly well qualified to handle her company’s finances, but invoice factoring was new to her.

During the first conversation with MP Star, two important pieces of information were uncovered:

  1. Smaller clients tended to place a small deposit and pay the balance within a couple weeks of the event
  2. Larger clients would also send a deposit, but tended to take longer to pay the balance. (One hospital was approaching 75 days on a $18,000 invoice)

While payments were often slow, not a single account had defaulted on an invoice in three years. There would always be cash…it just wasn’t coming in fast enough. And there was no question the catering company was stable, reputable and had a chance to succeed.

For these reasons, an invoice factoring plan with MP Star made a lot of sense.

The Result: Better financial footing/cash flow management for a growing company

MP Star immediately factored about $40,000 in outstanding invoices. The next month, another $22,000 was factored.

MP Star also recommended a better system for ensuring that bad checks weren’t unintentionally written, and even suggested a plan for giving the caterer’s clients incentives for making larger deposits on contracted services.

As a result, the company is on firm financial ground. It has added staff, moved to a better facility, and even purchased a small bakery to scale-up its menu and provide fresh pastries to fine restaurants.

And the owner? Thanks to the added staff, she’s no longer working 60 hours a week.

“We actually still factor most of our larger invoices,” she said. “It’s easier, it’s dependable and I don’t have to guess when payments are coming in anymore.”

The cash flow management lesson

Don’t let your hard work and plans for growth backfire on your company! Cash flow problems can overwhelm you, but there are usually good options for getting back on track.

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 helps company survive cash flow interruption

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

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

Contact MP Star Financial to find out if invoice factoring can work for your company. Call (800) 833-3765, extension 150.


Read More Case Studies