MP Star Invoice Factoring Case Study: video production company uses factoring to keep “dream client”

Maybe this is how Steven Spielberg started.

The one-man industrial and corporate video production company had been in business barely a year. “I’d majored in journalism and had been out of school almost two years,” said the owner. “I was picking up freelance jobs with local TV stations, doing camera work on the weekends. I also did some cable TV work on high school sports…I shot and edited a music video for a friend’s band, that kind of thing. But I found out that the steady money was in corporate work – training videos, meetings, presentations from corporate officers, and things like that.”

The owner invested in a state-of-the-art camera and editing equipment, then hung out his shingle. He picked up jobs sporadically, and was somehow getting by.

“Most of my early stuff was a one-shot deal,” he said. “You’d go in and shoot two hours of someone showing you how to operate a machine…you’d go home and edit…then you’d add graphics and send them the finished product. That was it. I mean, there were repeat customers, but there weren’t any steady ongoing customer relationships.”

That started to change one day when he was asked to bid on a two-year project for a Cleveland hospital system.

The hospital group, in partnership with a Canadian pharmaceutical company, wanted to produce a series of monthly videos that would show physicians how to interview patients to determine if they were good matches for a series of new medications. The series would run for 24 months and, if the project went well, the process could easily be repeated for other medications developed by the Canadian company.

The Production

The owner was awarded the contract after a series of meetings with representatives from both the hospital group and the drug company. He was happy, but concerned. “I wanted this to be perfect,” he said. “This was my dream client. The pay was good, there was prestige for my company, and I was genuinely excited about the creative latitude they were giving me.”

To make it “perfect,” the owner decided to hire professional actors to play the parts of the doctors and patients. From a creative standpoint, this was the right thing to do. But financially – for a young company still struggling with cash flow management – it was risky.

The initial two segments were shot in the first month. The owner was given a 25% deposit on the work to be performed, with the remainder to be invoiced net 30 days.

“The problem turned out to be with the professional talent I hired,” he said. “They were represented by SAG (Screen Actors Guild) and AFTRA (American Federation of Television and Radio Artists) and were very expensive. They were worth it – no question – but they were expensive.”

Cash Flow Problems

What the owner didn’t know was that although they always paid – eventually – healthcare organizations were notoriously slow at getting around to it. The owner called both the pharmaceutical company and the hospital, and was told that his invoice had been received and would be processed shortly.

“It was almost eight weeks after the shoot and I still hadn’t been paid,” he said. “We were ready to start the second round of production, but I was afraid to call in more talent, because I hadn’t paid the actors from the first two shoots yet. Besides, I didn’t want to get a bad reputation with the unions, especially as I was just starting out.”

A Chance Conversation and Possible Solution

“I wasn’t nearly well established enough to approach a bank for a line of credit, and I had put most of my savings into the equipment I needed to get started. I was feeling pretty stressed when I mentioned to a friend what was going on, and he told me about invoice factoring. His father had used it for his business – something completely different from video production – and it had worked well for him.”

The Action: Contacting MP Star

The owner called MP Star, on referral from his father’s friend, and spoke with a factoring representative about his cash flow problems.

He showed them the outstanding invoice and the agreement for services over the next two years, and explained his desire to pay his union contractors as soon as possible.

After preliminary checks on the hospital group and the Canadian pharmaceutical company, MP Star arranged to factor the first invoice. After just a couple days, the owner had the almost $24,000 due for the first two shoots. His actors were paid, and he was able to begin the next production feeling confident that he’d found a solution to his cash flow problems.

The Result: A Valuable Client and Healthy Cash Flow Management

The owner continued to factor the receivables due from the project over the next two years. This allowed him to focus on the creative side of the business, and reach out to actors, technicians and other potential partners without worrying about how they would be paid.

“We still factor some receivables with MP Star,” said the owner, who continues to work with the pharmaceutical company and is developing a good reputation in the health care niche. He has added three employees, including a full-time editor.

“For me, it worked out well. My business credit rating is great, and cash flow management is not something I need to worry about anymore.”

The Lesson

Don’t let a slow-paying customer hurt your growth plans. Contact MP Star for information on factoring your outstanding receivables. Call MP Star Financial, the invoice factoring experts, at (800) 833-3765, extension 150.

Can’t wait? Apply for invoice factoring online.

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