Recognising the Potential
In 2007 the Australian Government commenced a renewable energy program called the Solar Homes and Communities Program. The program provided rebates to householders and owners of community-use buildings who acquired Photovoltaic (PV) energy systems.
Solar Harness was one company which provided and installed the energy systems. The company applied to the government and was successful in having a contract to supply homes in Western Australia.
While government business would be deemed low risk with regard to being paid, the payment terms contractors had to accept could themselves present a risk for a small to medium business.
Under the terms of the contract, invoices issued to the government would not be paid in under 45 days and could stretch up to 60 days. When those invoices are well in to six or even seven figures that is a lot of revenue which is not available for a company to use.
Nathan Parker was a working director of Solar Harness at the time and commented “There was nothing worse than getting work and not being able to facilitate it because of cash flow problems.” The company needed a solution.
Looking for a way to provide a regular cash flow, Nathan did consider more traditional funding and in spite of the customer being the Australian Government, the fact it was a solitary customer meant the company wasn’t successful in getting funding. A “single debtor” scenario is usually considered high risk.
Without having several million dollars of real estate collateral to offer, the amount of funding required also proved to be a stumbling block for banking type finance. The quality of the end customer was never taken into account.
Nathan was aware of factoring or debtor invoice and spoke with Dave Tate at Cashflow who was prepared to listen and who could see the potential of doing business with Solar Harness. Cashflow looked beyond the “single customer” scenario, they discussed possibilities with the three Solar Harness directors, considered the credentials of the customer, the business processes of the company, business to date and the future potential.
“Cashflow were easy to deal with, Dave took the time to explain everything, how it all worked and came up with a workable solution, which allowed us to take on more business” said Nathan.
Every single invoice was paid. It was a profitable venture for all concerned, business which was based on good faith and good judgement.
In June 2009, the government terminated the program, however all contracts entered prior to the termination meant work continued following that date.
Nathan Parker now runs a rather different business with payment terms he controls, so he no longer uses Cashflow to ensure his company’s regular revenue. However, should the need ever arise he wouldn’t think twice about using Cashflow to ensure a regular revenue stream.