If your bank is lending to businesses that have big box stores as their customers, you may have some low hanging fruit just waiting for the right opportunity.
Big box stores, like Wal-Mart, Sam’s Club, Costco, Best Buy, Home Depot, etc. offer huge opportunity to small businesses. But, it can also come with a lot of risk. When a small business lands a big account, like Wal-Mart, the owners initially celebrate the good news. But, not so fast! First of all, they probably just got back from visiting Wal-Mart’s headquarters in Bentonville, AR and their profit margins are slimmer than originally proposed. That’s lesson number one. The first order comes in and it’s all hands on deck to get it shipped. Hopefully, the business already had a line of credit in place with their bank. If so, it probably means that a majority of those funds were deployed to complete the first order. And, this probably precipitated a visit to the bank to request an increase to the line, which may or may not have been approved.
Some of the more experienced lenders probably remember the phenomenon several years back in dealing with Sears. A lot of small businesses went out of business as a result of relying too heavily on one customer and bad things did happen. Today, the Wal-Mart’s of the world need these innovative small business suppliers and as such treat them a little differently. But, they still make the rules!
Number one, the business is going to get paid, but not before 60 days, like clock-work. Depending on how much Wal-Mart and its customers like the product, that alone could be the kiss of death for an undercapitalized business trying to fulfill large orders. Wal-Mart does understand this, and as a result they do allow for the assignment of their accounts receivables. Not all big box stores allow this, although contracts can be negotiated. This is an important point to our solution below.
The next order will likely come in before the first invoice has been paid. This puts the business in a cash flow crunch, making it difficult to get the next order shipped, while having to still pay overhead, make payroll and keep up with payables. The owners get frustrated because they can see their business growing with lots of opportunity, but not enough money to support the growth, because their capital is tied up in their accounts receivables. They also don’t understand why a bank may view this situation as a credit risk and is unwilling to increase their line of credit.
RMP’s Community Bank Program has two ways to reduce risk and exposure to the bank and provide the necessary capital for the business to reach its full growth potential. Headquartered on Long Island, NY, RMP Capital Corp provides a hybrid, turnkey Accounts Receivable Funding Program that banks can refer to their customers and prospects at no risk or cost! Accounts Receivable Funding is an alternative to traditional bank financing, specifically to increase cash flow and fund growth. Cash flow is increased by having invoices funded within 24 – 48 hours, allowing the business to self-fund their growth. The deposit relationship continues to grow and the bank receives fee income for the life of the relationship. Best of all, when growth levels off, the bank has maintained its trusted relationship for future traditional credit needs.
In some cases, the business may not have the necessary capital to even purchase the product to be shipped. In this instance, RMP Trade Credit provides Purchase Order Financing to supply the necessary working capital for a business that has sales orders but needs money to fulfill a transaction. This is done by funding purchasing needs so a business can complete a sale to their customer. The bank also receives fee income for the life of the Purchase Order Financing relationship.
RMP’s professional Bank Consultants know how to talk to your customers and prospects to identify their growth opportunities, solve cash flow problems and increase profits.
Give us a call to see how RMP’s Community Bank Program can work for your bank.
Chuck Stover, Manager of Bank Relations