As summer arrives, integrators face some of the most rewarding yet challenging months in the business. Learning to deal with seasonality can be a daunting task, especially when several large projects overlap.
Seasonality can make balancing purchasing, AR, and AP difficult. The last thing you want to do is say “no” to a project that could make this season your best ever!
To help you focus on finishing projects – not funding them – we’ve put together a list of best practices to alleviate the cash-flow issues integrators experience during peak season.
The industry average for hardware costs associated with a particular project is 60% to 70% of the project value. While not always possible, deposits help immensely – many other industries require some payment upfront before a project begins. If you can get a customer deposit upfront, that helps eliminate some of the cash carry associated with the project.
Asking your vendors/suppliers for extended terms – instead of net 30, try net 45 or even net 60 – can help improve cash flow on a project. Setting up extended terms with suppliers can, in some cases, allow you to finish the project and invoice the client before you pay for your raw materials.
Bank Line of Credit
Utilizing a traditional ABL or line of credit is key. Most banks lend against inventory and receivables. Depending on the advance rate offered by your bank, this may be sufficient. Some integrators have also negotiated bank facilities whereby the bank will lend against work-in-process. This helps when you don’t have sufficient receivables to borrow against.
Consider working with a third party that can provide supply-side liquidity by remitting payment directly to suppliers on your behalf. This effectively extends the terms you have with your suppliers. Programs like this can significantly help with cash flow for large projects and may also be used to capture early payment discounts with suppliers. When these programs are unsecured, you can use them in tandem with your existing ABL or line of credit.
Foresight and Preparation
If you want to say “yes” to more projects this summer, then it’s important to plan ahead and have relationships in place to help you get there. Working with your venders, banks, clients, and NSCA Business Accelerators now will help you make this season one for the record books! –Zach Fox, Sales Director at NSCA Business Accelerator Tradecycle Capital