$250,000 Factoring Facility Keeps

Wholesale Food Processor Running on High

Situation:

A successful 20-year-old Minnesota wholesale food processor suffered losses when the price of commodities skyrocketed more than 100%. The Company provides private-label packaged foods to small, local stores, retail outlets, and wholesalers. They also provide order fulfillment services for online retailers. They didn’t have clauses in their customer contracts to pass along the increased costs to their clients. Additionally, some of the Company’s overseas suppliers required payment in advance of any shipment, which resulted in a cash flow constraint.

They approached their longtime bank for an increase in their $600,000 line of credit, but the bank denied the request due to the Company’s financial condition. The food processor was in a bind.

Solution:
After meeting with the Company to tour their operation and get to know them and their business, we provided an additional $250,000 of financing by factoring three of their accounts. We worked hand in hand with their bank to subordinate its position on those accounts.
Also, we worked with the food processor’s equipment finance company, which had filed a broad lien against all the Company’s assets. The equipment finance company agreed to remove the lien against the accounts receivable so it could be used for current and future factoring.

Result:
The Company acquired the cash flow they needed to meet their payables, freed up collateral to provide additional working capital, and discovered a local, flexible capital source with a personal touch. And the bank was able to help their customer without having to compromise their lending guidelines.

What’s Next:
The Company can use the capital to its advantage by negotiating quantity discounts and early payment discounts from vendors offering terms.