Case Study – Information Technology Company
Client: “Company A” solves mission-critical IT challenges for government and commercial customers.
Synopsis: For several years, Company A maintained a strong relationship with their bank. Until one day, when the government decided to reduce IT commitments, notifying Company A that they would not renew certain contracts. Additionally, the government reduced rates on their existing contracts. Company A wanted to honor established rates with their sub-contractors, but this caused them to be less profitable, putting strains on their balance sheet.
This unfortunate situation occurred suddenly and without warning. Company A was unable to secure new business quickly enough to meet their monthly obligations. The financial stability of the company suffered. Company A incurred losses.
In response, Company A’s bank did the following: First they drastically reduced Company A’s line of credit. Then they required more collateral, more equity, and a cash investment from a family member who was not involved in the business. The bank’s decisions were in line with their strict regulatory environment, but Company A’s management team was frustrated and discouraged.
What happened next?
Company A’s CPA referred them to A/R Funding. After a brief approval process, Company A received funding off their account receivables, allowing them to bolster their working capital and cash flow positions. A/R Funding was able to bridge the company’s financial situation (from their dual problem of losing bank financing and losing a major contract all at once) to a better position, thus sustaining them with cash while they made the transition to lower profit margins. A/R Funding also gave them time to adjust prices and ratios for the new business they were building. Both Client and CPA appreciated the flexibility offered by A/R Funding, and all parties look forward to a lengthy relationship.
Solution: A/R Funding provided Company A with cash flow, working capital funding, and a steady, reliable financial relationship.