38
ACT
SEPTEMBER 2013
INDUSTRY FOCUS
EQUIPMENT FINANCING
THE AUTHOR
With more than 20
years commercial
lending experience,
Tina
Cawthorn
is business
development manager
for Orange Commercial Credit, which is
headquartered in Olympia, WA and has field
offices in Tennessee, Missouri, California,
Oregon and Washington. Cawthorn
previously worked for GE Capital/Colonial
Pacific Leasing and Textron Financial.
Tina Cawthorn
discusses
non-traditional business
financing options.
Finance
I
f you’re like most companies in
the crane, rigging and specialized
transportation sector, you are
always on the lookout for methods to
help your business move forward, and
these considerations may include your
financing options. In today’s economic
environment, your financing options may
be limited, and we all know the old adage:
“It takes money to make money.” Cash
flow is the lifeblood of every company.
Generally, the most cost-effective
way to finance a business is through a
bank loan or a line of credit. However,
many businesses don’t meet today’s
banking requirements. Additionally,
bank products come with a myriad
of covenants and restrictions, not to
mention ongoing and costly audits and
reporting requirements. For these and
other reasons, many successful businesses
are now utilizing invoice factoring as an
easy-to-use and effective solution to their
cash flow needs.
Define factoring
What is invoice factoring? Simply put,
invoice factoring is the acceleration
of your company’s greatest asset, your
receivables.
If your crane or specialized carrier
business extends credit by offering
payment terms to your customers, you
essentially become your customers’
banker. In effect, you are lending money,
typically interest free, and you are losing
the use of that resource while you are
waiting to get paid. Extending credit
in this fashion is unavoidable for most
businesses. However, if a business has
a large portion of its capital tied up in
receivables, taking advantage of vendor
discounts, funding new or large jobs
or even meeting payroll and other
obligations may be difficult.
By electing to partner with a factoring
company versus a bank, you are choosing
an off-balance-sheet method of financing.
Factoring is not a loan, and therefore
does not create debt for your company.
Further, factoring can enhance your
balance sheet by improving your debt-to-
equity and debt-to-asset ratios.
Financing growth
Many companies in the crane, rigging
and heavy haul sector utilize and rely
on factoring as a means to accelerate
their cash flow and meet their daily
operational expenses. For some it means
the opportunity to accept more jobs or
fund the upfront costs for future projects.
Since factoring is not a loan, the process
predominately focuses on the financial
strength and payment history of your
customer, the ultimate debtor. Fee
structures offered by a factoring company
are determined on an individual basis,
with the strength of the debtor’s ability
to pay and the overall business volume
having the most important impact.
Factoring as a fact of business life was
underway in Europe prior to 1400, and
came to America with the Pilgrims
around 1620. Factoring has been most
commonly used in the transportation
industry as a practical matter of business
due to the high cost of operations and
ease of use.
Most factoring companies have a
similar set-up process that starts with the
submission of an application. A standard
application will ask for information about
the ownership of your company and your
customer base. An accounts receivable
For a company carrying a substantial
amount of outstanding receivables,
acquiring a factor partner can be a good
option for generating capital to fund a
new project or purchase new equipment.
