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May
02
2012

Service Business Increases Profits Using Accounts Receivable Funding!

Posted by in Bank Program, General Information

In working with banks and providing an Accounts Receivable Funding Program through RMP Capital’s Community Bank Program, one question that is often asked is: “How can a business increase profits using Accounts Receivable Funding?”  The key to being successful on our program is what the business does with the money!  In other words, since Accounts Receivable Funding essentially puts a business on a cash basis, no longer waiting for customers to pay their invoices, the difference is how those funds are employed.

The following is another actual case study of a service business that illustrates this point:  This business is a high tech contract staffing company currently doing around 4.9MM in annual sales.  Gross profit is currently 34.3% and net profit is 3.1%.  The bulk of this businesses capital is used to fund bi-weekly payroll of the technical staff.  Unfortunately, most businesses in this industry don’t have a lot of collateral to support increases to a traditional bank line of credit.  When that happens, cash flow suffers and growth stalls.  Why, because payroll obligations must be met bi-weekly, while invoices don’t get paid until 45 – 60 days.  In this example, the market could support 30 – 40% sales growth using existing facilities and staff.

The decision to use Accounts Receivable Funding was based on the following company goals:  Have cash flow to support 30% growth; improve profitability to a minimum 5 – 7% net profit margin; and, get “debt-free” of their $400K working capital line.

The 90-day results are impressive:  Sales increased 18.5% to 5.8MM/yr; net profit margin forecast up to 5.5%; and, now “debt-free” of their working capital line!

The future profit and loss projections are as follows:

                       Before              at 30%

Sales              4.920,000       6,400,000

COGS             3,233,000       4,205,000

GP                  1,687,000       2,195,000

34.3%             34.3%

Net profit   153,000        390,000

                                 3.1%             6.1%

This is just another example of a business that had opportunities to employ a strategy of reinvesting cash on a daily basis to not only offset the higher funding costs, but increase net profit in the process.  Accounts Receivable Funding allowed this business to reach its full growth potential by tapping into their accounts receivables, usually a frozen asset, to solve their cash flow problem.

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.

RMP Capital Corp, headquartered on Long Island, NY, 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.  Give us a call to see how RMP’s Community Bank Program can work for your bank.

Chuck Stover, Manager of Bank Relations

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