7. Improving Cash Flow and Managing
Accounts Receivables
Emerging Business Symposium 7
8. 5 parts to our Presentation
• Small Business
Environment
• Improving Cash
Flow
• Managing Accounts
Receivables
• Factoring
• Question and
Answers
Emerging Business Symposium 8
33. Single Most Important Issue
January 2012
Cost Insurance
Quality of Labor
4% 5% 21% Competition Larger
4%
Cost of Labor
3%
Financing/Interest Cost
8% 20% Other
5% Inflation
7% Taxes
23%
Red Tape
Poor Sales
33
56. Theme of my presentation
• Cash flow is THE most
pressing concern SME’s
• Simplest form
• Movement of money in
and out of your
business
• Life blood for every
business
• Primary indicator of a
businesses health
Emerging Business Symposium 56
57. Cash Flow
• Is THE most
pressing
concern for
small and
medium sized
businesses
[SME’s]
Emerging Business Symposium 57
58. Cash Flow
• Simplest form
it is the
movement of
money in and
out of your
business
Emerging Business Symposium 58
59. Cash Flow
• It is THE life
blood of every
business
Emerging Business Symposium 59
60. Cash Flow
• Primary
indicator of a
businesses
health
Emerging Business Symposium 60
61. Cash Flow
Effect is
real, immediat
e and if
[when]
mismanaged
totally
unforgiving
Emerging Business Symposium 61
65. 4 Simple Principles
Cash is not a given. It is
not a
passive, inevitable
outcome of your hard
work. It does not arrive
willingly. Rather it has
to be tracked, chased
and captured. YOU
must control the process
and there is always
room for improvement.
Emerging Business Symposium 65
66. 4 Simple Principles
Cash management is
as much an integral
part of your business
cycle as production or
planning.
Emerging Business Symposium 66
67. 4 Simple Principles
You need accurate
and timely information
to be successful
More on this later
Emerging Business Symposium 67
68. 4 Simple Principles
You need some luck in
order to be successful.
Or the less you leave to
chance, the higher your
chance of success.
“Murphy” was an
optimist.
Emerging Business Symposium 68
69. Able to answer these…
• How much cash does
my business have?
• How much does it
generate?
• When should I get it?
• When do it get it?
• How much cash do I
need to operate?
• Do have accurate
data?
Emerging Business Symposium 69
70. Advantages of managing cash
• Know where cash is tied up
• You can spot bottlenecks
and act to reduce their
impact
• You can plan ahead
• You can reduce your
dependence on banks and
save money
• You can identify surpluses
that you can invest
• YOU ARE IN CONTROL
and make informed
decisions
Emerging Business Symposium 70
71. Many don’t ever do it
25% SME’s never
confirm credit terms
with clients
NO excuses
Two benefits; avoid
depressing downside of
cash crises
And you get a
commercial edge on all
of your transactions
Emerging Business Symposium 71
90. Cash conversion period
• 3 Key parts
• 1. Inventory conversion;
time to transform raw
materials into product out
the door
• 2. AR conversion; time to
convert AR into cash in the
door
• 3. Payable deferral period;
time between
purchase/usage and
payment
• Math is simple: [1+2] – 3 =
cash conversion period
Emerging Business Symposium 90
91. Working Capital Cycle
• [1 + 2] – 3
• Trick is to
• Minimize 1 and 2
and then
maximize 3
• Never ending
battle
Emerging Business Symposium 91
93. Key to accelerating cash flow is to
• Shorten the Accounts
Receivables conversion
period
• Look at each step and
ensure that it is efficient
and effective as
possible
Emerging Business Symposium 93
94. Define Cash Flow Cycle
Inflows
Outflows
Management
PROFIT is not
Cash Flow
Emerging Business Symposium 94
95. Inflows
• Money in including
• Receipts from sales
• Collect AR
• Proceeds of a loan
• Interest on
investments
• Shareholder
investments
Emerging Business Symposium 95
96. Outflows
• Money out including
• Purchase finished
goods for resale
• Purchase raw
materials
• Pay salaries, expenses
• Purchase fixed assets
• Pay principal and
interest
• Pay taxes
Emerging Business Symposium 96
97. Accelerating cash flow
• Quicker you
collect, the quicker
you can invest to
make more
• Key is to streamline
ALL elements of the
cash conversion
process
• Incremental
improvement
Emerging Business Symposium 97
98. Client purchase decision + order
• No clients = no cash
to manage
• Make the ordering
process
quick, precise and
easy
• Do you ever try to
buy from yourself
• Post office vs.
McDonald’s
Emerging Business Symposium 98
99. Credit Decision Process
• Efficient
• Systematic
• Never ending
process must be used
• It’s not where you
start, it is where you
finish
• The real world
Emerging Business Symposium 99
100. Simple questions to ask…
• Do you methodically check all
new clients before the first order?
• Do you periodically review
existing client credit?
• Do you do a full recheck when
significant increase in volume of
existing client occurs?
• Do you check trade references?
• Is there a single person
responsible for supervising credit?
• Ensuring prompt collections?
• Is someone accountable if the
credit gets out of hand?
Emerging Business Symposium 100
101. Simple questions to ask…
• Do you assess credit
risk carefully?
• Is the data accurate
and constantly
refreshed?
• Are your credit
terms very clear?
Are you sure?
• Apply the 80/20 rule
Emerging Business Symposium 101
102. Simple questions to ask…
• In a sales
negotiation it is
professional, not
“antiselling” to be
upfront about terms
of payment.
• How can you do this
strategically?
Emerging Business Symposium 102
106. Rely on data, not opinions.
Emerging Business Symposium 106
107. Simple questions to ask…
• Put terms clearly on
Application Form
• On “Welcome Letter”
restate terms and
conditions
• Order Acknowledgement
state terms + conditions
• Invoice show due Date to
reach you by
• Make it easy to pay
Emerging Business Symposium 107
108. Set up New Client Correctly
• Expect client to
request credit; be
ready!
• Credit Application
Form
• Determine credit
limits
• Send Welcome Letter/
Email
• Contacts / address for
payment
Emerging Business Symposium 108
109. Invoicing
• Design an invoice that is
better than any coming
into your company.
• Keep it
brief, clear, simple.
• Get rid of the ads.
• Invoice with 24 hours no
exceptions.
• You don’t get paid if
your client never gets
the bill.
Emerging Business Symposium 109
110. Collection Process
• Don’t feel guilty
about collecting a
debt.
• You are owed for
goods or services
provided.
• Start the process the
minute a sale is
made.
Emerging Business Symposium 110
111. Collection Process
• Time is money and is
your worst enemy.
• Be professional at ALL
times.
• If you have laid the
ground work
properly, you will get
paid.
• This is a competitive
sport; if you are not
getting paid, someone
else is.
Emerging Business Symposium 111
112. Ask these questions
• How long does it take us
to invoice? Can this be
speeded up?
• Monthly statements; can
this be speeded up?
• Are all terms of sale clearly
and precisely shown on all
quotes, price
lists, websites, invoices and
statements?
• What is the real average
length of credit that you
are giving?
Emerging Business Symposium 112
113. Ask these questions
• Do you have a
collection procedure?
Is it followed?
• Are you firm but fair
with your approach?
• Do you monitor every
client on a never
ending basis?
• Do you pay your sales
people before you get
paid?
Emerging Business Symposium 113
115. Collection Process
• Time is money and is
your worst enemy.
• Be professional at ALL
times.
• If you have laid the
ground work
properly, you will get
paid.
• This is a competitive
sport; if you are not
getting paid, someone
else is.
Emerging Business Symposium 115
116. Do a Cash Flow Budget
• Month to
month, daily, weekly.
• Predict cash flow gaps and
allows you to take steps
before a crisis occurs.
• Usually done only once; when
you are applying for a loan.
• If you don’t know how to do
this, seek professional help.
NOW.
• Process is not that difficult.
• Rely on data, not
assumptions.
• Assume the worst, work to
achieve the best.
Emerging Business Symposium 116
117. Cash Flow Budget
Prepare sales forecast.
Project anticipated cash inflows.
Project anticipated cash outflows.
Put projections together, cash flow
bottom line.
Identify surplus to invest.
Identify shortfalls and steps needed
to be taken NOW.
Identify longer term surpluses to fund
expansion.
Identify longer term needs from
other sources.
Assume the worst, work to achieve
the best.
Never ending process.
Emerging Business Symposium 117
118. Plan ahead.
• Many sources of capital.
• Bank, private
investors, family, etc.
• Most are not “user
friendly” to start ups.
• Excellent and overlooked
source of funding is
factoring.
• This can be a possible
solution.
• It only works if you have
sufficient margin to afford
the cost.
Emerging Business Symposium 118
121. Factoring can be possible solution
Sell Accounts
Receivables for small
discount
Does not fit all cases
Make sure it is a
perfect fit before
you get involved
MARGIN is the key
Emerging Business Symposium 121
127. United Capital Funding
April 1997
National practice;
banking “roots”
SBA Award
C.P.A. Background
Goal: Not vendor, a
partner!
Relationship, not
transaction business
First Tennessee strategic
alliance
Emerging Business Symposium 127
137. Our Practice Focus
“In good
times, trusted client
partnerships will fill
your sails with wind;
in a difficult
economy, they
provide essential
ballast that will
keep you on an
even keel.” Emerging Business Symposium 137
142. What is Factoring?
Accounts Receivable factoring
Purchase invoice advancing % of the face
value of the invoice [usually 80%]
Balance, less fees and reserve remitted to
client upon collection by our lockbox
Notification + verification based factoring
Client gets immediate cash
“Outsourcing”
TM
Intelligent.Working.Capital.
Emerging Business Symposium 142
143. What this is not…..
NOT a loan
NOT based on net
worth or cash flow
NOT lender “last
resort”
Time in business is
not important
Serve as “credit
manager and/or
outsource partner”
Emerging Business Symposium 143
145. Client Attributes
$0 to $25 Million
Any stage lifecycle
Limited collateral
Funding in most
industries, but not
construction and
medical firms
Startups ok!
Client must have
sufficient margin
Emerging Business Symposium 145
148. Needs change over time
Opportunity Inception Launch Grow Harvest Evolve / retire
High
Growth/ Company revenues are not the
Activity only indicator of attractiveness.
Our practice best lends itself to
companies, large or small, who
are in an innovating, high-
growth/high-demand situation.
Low
Start up
Small Business
Company Mid-market
Size
Enterprise (departmental)
Emerging Business Symposium
151. Client Locations by State
MT
0%
MA MD MN MO NC
IA IL IN 3% 2% 3% 1% 2% NJ NV
1% 4% 0% MI 1% 1% NY
3% 4% OH
1% PA
GA 6%
10%
SC
9%
FL
33%
TN
AL 7%
TX
0% 2%
VA
VT 1%
CA AZ 0%
DC CT 1% 0%
3% WA
0%
2%
Emerging Business Symposium 151
152. Current Portfolio
18
37
17
8 9 11
Staffing Distribution Service
Manufacturing Technology Other
Emerging Business Symposium 152
178. Professional Services
Accounts Receivable
Management
Working Capital
Professional, turnkey AR
monitoring
Access to Credit Insurance
Ability to credit qualify
prospect/debtor at no cost
Secure, 24/7 online reporting
Secure, lockbox services
Peace of mind
Emerging Business Symposium 178
179. Why are we different?
No term
Minimums
Start up fees
Termination fees
Per invoice
Client remains in
control
Emerging Business Symposium 179
181. Recent Milestones
Will Have Funded $1.5
Billion Cumulatively
since formation in 1997
Financially solid, stable
Several industry players
leaving due to lack of
funding and/or losses
First Tennessee support
Emerging Business Symposium 181
182. Professional Fees
• Simple, JIT Model
• 5 day fee
FUNDING, not invoice
date to collection @
lockbox
• Wire / ACH fees
• No other fees
• All fees are itemized
per invoice, and
available online
Emerging Business Symposium 182
184. Professional Fees
• Determined by:
• Size of AR
• “Pedigree” clients
• Concentration vs.
diversification
• FICO score
• Credit insurance
Emerging Business Symposium 184
185. Professional fees are….
Less than credit card
merchant fees
Less overdraft APR
More than traditional
bank line of credit
No personal guarantee
All services bundled
Fees itemized invoice
Profitability modeling
Incredibly competitive
Emerging Business Symposium 185
187. Professional Services
Accounts Receivable
Management
Working Capital
Professional, turnkey AR
monitoring
Access to Credit Insurance
Ability to credit qualify
prospect/debtor at no cost
Secure, 24/7 online reporting
Secure, lockbox services
Peace of mind
Emerging Business Symposium 187
188. Many ways we can help..
• Credit
Information
• Credit Insurance
• Commitment to
Fund Letters
• RFP Support
and Logos
Emerging Business Symposium 188
192. Facts vs. Myths
The perception of
our industry is the
single largest
misconception we
encounter
Our website is an
educational resource
www.ucfunding.com
Emerging Business Symposium
192
193. Facts vs. Myths
Myth: Factoring is
used businesses in
“bad shape” or
Fortune 500 firms
Fact: Used by all
sized businesses
Huge industry $130+
Billion
Emerging Business Symposium 193
194. Facts vs. Myths
Fact: used more
than ever, start up
to mature
Astute managers
use it;
outsource, lower
breakeven point
Emerging Business Symposium 194
195. Fact vs. Myths
Aoccdrnig to rscheearch at
Cmabrigde Uinervtisy, it Myth: If you factor,
deosn't mttaer in waht oredr customers get
the ltteers in a wrod are, the
olny iprmoatnt tihng is taht “nervous” and leave
the frist and lsat ltteer be at Fact: Never
the rghit pclae. The rset can happened 10+ years
be a toatl mses and you can
sitll raed it wouthit a
serving
porbelm. Tihs is bcuseae the Use surveys to
huamn mnid deos not raed ensure quality
ervey lteter by istlef, but the
wrod as a wlohe.
Emerging Business Symposium 195
196. Facts vs. Myths
Fact: Actually can
cement relationship
Ability prequalify credit
limit critical
Assertively sell more;
average sale can
increase
Less dependent on
personal credit
Emerging Business Symposium 196
197. Facts vs. Myths
Myth: If you
factor, offend or
alienate clients
Fact: Goal is to
grow, not “offend”
Illogical aggravate in
any way
Proactively provide
references
Emerging Business Symposium 197
198. Standard Inquiry Steps
Personal credit on
Principal(s)
Comprehensive
Background check
Corporate, debtor search
Underwrite
Price Relationship
Proposal/No Interest
Letter
1 Business day
Emerging Business Symposium 198
199. There are no stupid questions
Emerging Business Symposium 199
200. We are only a click away
Emerging Business Symposium 200
202. Partnership
We succeed when
clients successful
Key to success is
partnership with
clients, partners,
Continue operate
with highest levels of
integrity
Emerging Business
202
Symposium