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One Friday, Big Larry and Factoring for Cash Flow

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One Friday, Big Larry and Factoring for Cash Flow

             
One Friday, Big Larry, and Factoring for Cash Flow…
                            One Friday back in 1995 I was sitting in the office around 10:00am thinking it was time to go to the post office and check the day’s mail. Like many days lately it wasn’t a function of ordinary business tasks for a given day, it was a prayerful event, often reminding me of every fiber of my religious upbringing. Why was I praying about the U.S. Mail?, For checks, money, what else. Like so many business owners I was hoping that the most critical part of my business would see another Monday. That critical part being my employees would show up because I had not failed to be able make payroll, again…
                  It’s a scary feeling thinking that 60 plus people are going to show up on a Friday afternoon, just like they did every Friday before, looking for that silly thing called money. I mean really, didn’t these people come to work for the love of it? Why did money have to ruin another thing?
                  At an early age I was learning the tried and true meaning of cash flow. What is cash flow? Why do I need to manage cash flow, and what impact does not keeping up with it have on my business? Some questions I once thought not so important were bearing down on me, and in a hard way.  As our landscape service business had grown so fast that year, our new customers were plentiful; our cash however, was not. We had numerous new accounts, and we had a very impressive accounts receivable report to show for it. The problem was, our money was on paper – our accounts receivable aging report. It was not in our bank.
                  Many businesses struggle with this same issue daily. Whether through growth, slower paying customers, or a windfall of newly awarded business from the plethora of bids they put forth thinking like we did, that they would only win a small percentage and to their surprise, like ours, won more than they bargained for. It’s a common problem, with not so common an anecdote. Growth is wonderful, Sales cures all, shoot for the stars… All clichés most of us agree with, all the while so greatly overshadowed later on by the one we forgot: Cash is King.
                  That particular Friday we did make payroll. As I stood at the post office box, with the door swung open, in the almost ritualistic way I did at least four out of five days in any given week that was not cursed with a Federal holiday designed by evil spirits to enhance my ulcerous stomach and borderline clinical anxiety disorder I had developed waiting on the mail – a check was thankfully inserted. Like so many days, I was at the post office with my boxes door open before the postal clerk had gotten to my number. That number at the time was in the nine-hundreds. I swore that all the bad things I ever did as a child were paid back to me when I applied for a post office box. My Karma was to have a number nine-hundred and something’s past where the postal person began putting mail in. I would be close to last, and thus, must wait.
                   Spending those days waiting at the post office for checks and customers payments cost me a lot of hours. The nights before those postal mornings cost me a lot of sleep. It was beginning to perplex me how in this great big world something like waiting on a piece of paper, not once but multiple times in a given week, was becoming more important than remembering to eat lunch. If I didn’t though, I knew the consequences… Big Larry was going to come.
                   Big Larry was Larry Ledbetter, the king of Pinestraw. An Alabama boy, born and bred, whose mama fed him gun powder and told him to knit his own diapers. At about six foot ten inches tall, and about two hundred eighty pounds, Larry was so confident in his ability to collect on any debt that he was the only person in the country I knew of who gave customers net billing terms – net 30 to be exact. Now Net 30 to Larry did not mean 32, or 33 days, and 31 days was as bad as 90. When the stroke of midnight hit, on the 30th day, I truly believe a subconscious alarm sounded in Larry’s head, with the name, address, and the shortest route possible by truck to anyone’s door who owed him money. Maybe it was just me, but on day 31, like some kind of ghost of father time, Larry always appeared.
                   Later that spring, on a typical Friday at the post office, the luck of the postal Gods was not with me; no checks came. As I stood there while the few boxes with higher numbers than mine, and there weren’t many, were filled, I waited thinking surely that person back there in that light blue 1960’s acrylic navy blue government sweater is going to come back and deliver me from my sins. That did not happen, and so with a tearful eye, I left the post office. As I drove back to the office I began rehearsing my emergency back up plans (a synonym for lame excuses I would give my employees why their payroll checks were no good) that I had thought of so many times, yet had been saved from by the graces of the postal Gods. My best one was to accidentally get stuck in traffic with all the payroll checks, until just after the bank closed, so they couldn’t be cashed until Monday.  
                   Then it dawned on me. Today was also day 31, for the invoice I had due to Big Larry. I knew like clockwork that sometime that afternoon Big Larry was going to be in my office, with that look on his face like someone just said something about his mother. Big Larry actually took offense to being paid late. He found it dishonorable and as if it were some type of sin that was recorded in the great book of life by God, but was one of the ones that was in indelible ink and no pardon was available for. Larry, was your best friend, you savior for tractor trailers loaded to the brim with beautiful red Alabama Pinestraw, 1204 bales per trailer… that came with Net 30 terms too! …Until… you hit day 31.

                   You see in the world of Pinestraw, there is no such thing as Terms. It is cash and carry, even for Home Depot and Lowe’s. The Pinestraw industry, if you can call it an industry, is made up of between 50 to 100 small businesses scattered throughout the pine stands from North Carolina to northern Florida. Often these enterprises consisted of one or two natives, who leased the pinestraw baling rights from a landowner. In turn they hired an untold number of migrant workers, housed them, and baled pinestraw about 8 to 9 months out of the year. Now the way pinestraw is “baled” is you take a rake and walking through the pinestands you rake the pinestraw on the forest floor into piles. Once in piles, you literally take a wooden box that has been made with wheels, and a wooden lever if you will, and you stuff pinestraw into the box, compress it with the lever, and you tie it with a string. With all of today’s technology, no one has ever been able to produce a mechanized baling device for pinestraw that did not crush and break the pine needles into an undesirable size. Now you know a little bit of useless trivia about pinestraw. May it serve you at the most unsuspecting time.

                    That afternoon around 2:30 the door to my office opened. Instead of the usual face of our receptionist telling me either I had a call, or some vendor had come by to call on me, or that one of the guys had left their enchiladas from last month in the refrigerator too long and she could not reach the coffee creamer in fear of being eaten by green mold spores, to no surprise, it was Big Larry. Big Larry had a habit of not taking the traditional “seat” in the front and waiting for someone to be available, but rather knew where to find me, and wanting to be the gentleman he was, save our timid receptionist the effort.
                     I knew why Larry was there. So did Larry. This time however, I had thought I had more justification that I had ever had. I had an Accounts Receivable aging report, and not just any AR report, but one that showed more than $300,000 in outstanding invoices. I was going to explain to Big Larry that the reason I was late paying my vendors was not because I had a new truck, or a vacation in the islands, but because we had so much of our cash flow tied up in our Accounts Receivable, we had enjoyed all this new growth, growth that Big Larry was going to directly benefit from in more business. This was my good reason for no working capital in the bank. I asked what was a cash flow poor business owner to do? It was just a matter of time before my receivables began to turn, and my landscape company’s cash flow would be solid again.
                     As I pulled out my AR report to show my most notorious vendor, Big Larry the Pinestraw King of Alabama, I pointed out the quality of my account debtors (a fancy term for people who owed me money), and how reliable my clients were in paying their accounts payable… Larry began to look puzzled.                      I asked Larry what the problem was, why he looked so confused. He stopped, with a pause that seemed like an eternity. I thought he was about to take me out behind the woodshed having had enough of my antics. Larry looked up from my AR report, and said “Boy, why don’t you have a Factoring company?”  
                     Like most guys with the basic Business degree, having had those classes in accounting and finance, I replied the same answer most business owners with cash flow problems replies with: “What’s a Factoring company”. I had never heard of such a thing. I thought it sounded like some kind of personal bodyguard service, or maybe I just thought that thinking at that moment I wish I had one.  As it turned out, Big Larry, in all of his sophisticated backwoods Alabama aristocracy and complex business dealings (as in pay me or I’m a coming to see ya) had himself a “Factoring company”.
                     As it turned out that day, Big Larry educated me on more than I ever dreamed he could. Larry told me all about Factoring, or Accounts Receivable Financing as he called it.

  • He told me about how I could take my outstanding accounts receivable and submit the invoices to my factoring company, and they would in turn advance me money on my AR.

                     I couldn’t believe what I was hearing. Did this mean no more waiting by the post office box like a kid waiting on mom’s hot cookies to come of the oven, just without the sweet taste and more so just to cure a hunger pain.

  • Larry told me about how his factoring company gave him the typical 80% advance rate on his accounts receivable, keeping him always with positive cash flow.
  • Factoring gave Larry ample working capital
  • The ability to finance his AR on an a la carte basis
  • Pick and choose invoices, and
  • Worked with a company that was easy to get along with, had great customers service and was about building long term factoring relationships.
                    This sounded like something out of a dream. My stomach ulcers were already starting to recede, my anxiety was more like everyone else’s and not that of someone who just escaped from the mental health asylum, and my mind was racing from all of the freedom Factoring could provide me. All the things that such a solution like Factoring my receivables could solve, was too much to take in all at once. With a factoring line we could fuel growth, we could take on new business without worrying about the lagging cash cycle, we could make payroll, pay vendors, pay payroll taxes on time, and even approach some vendors who we knew would give us deep discounts if we paid with cash, COD. But, what it really meant was that I would never, ever, have to see Big Larry on day 31 ever again! I could buy my materials from Big Larry, and on day 29 I could factor an invoice and wire Big Larry his money.I could go to sleep that night not wondering if Big Larry was going to be making that drive from Alabama to my office.
                    As time went on and our business learned to use factoring religiously, we grew like  never before. All of our fears about waiting on customer’s payments, aged accounts receivable, slow paying customers, collections, lag time in working capital, cash flow… It was all alleviated. All thanks to some guy named Big Larry, and my desire to avoid dis-figuration at the hands of him or alternatively 60 unpaid employees who did not speak English revolting because we did not have funds for payroll. If I was going to die young, at least I wanted my last words to fall on ears that did not need an interpreter.
                       If you or someone you know has lagging cash flow, accounts receivable that are outstanding and not in the bank – please send them my contact information or send theirs to me. Best Regards,

Scott Preston Brown

 



By | 2016-10-18T18:03:49+00:00 November 13th, 2012|Uncategorized|0 Comments

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