Despite recent upticks in the American economy and a general feeling among both consumers and businesses that we may have seen the worst of the Great Recession, the need of small and midsize businesses to gain access to affordable capital remains a pressing issue within many communities. 

With more than $17 trillion (yes, trillion) in accounts receivable from more than 4 million B2B companies having flowed through the American economy in 2009, businesses are actively seeking solutions to ease their liquidity challenges – without going into even more debt.

The difficulty in this often does not rest on the small business itself, as many of America’s greatest entrepreneurs and small businesses continue to progress with hiring plans despite the country’s current economic hardships. What is truly detrimental to the country’s small-business community is the fact that business owners are often turned away by the very community banks that used to be the financial lifeblood for the small-business community, just when businesses need them the most.

Often, the need for fast access to working capital arises from a positive event – either a company has received a large order that it needs financing for in order to fulfill its obligation, or the company is growing at a rate that necessitates shedding some of its business receivables to sustain its growth. Neither of those two scenarios is necessarily a bad situation to be in if you are a small or midsize business, but without an alternative solution to the traditionally slow process of obtaining working capital, both situations can seriously derail a company’s growth strategy.

One such company that found itself in a similar situation was Visual Evidence / E-Discovery, a Cleveland-based technology solutions provider for the legal industry.

After 22 years of strong growth, the company found that because of the economic recession, its customers were forced into extending their payment terms even longer than usual, which caused the company’s cash position to dwindle. Given the fact that in the legal industry, it can often be a long and difficult process to obtain payments from all parties because of various layers of billing, this was cause for concern for Dan Copfer, VE’s president. 

“In our industry, it can be difficult to be paid on 30-day terms, under normal circumstances,” Copfer says. “We bill the law firm, who then bills the client, who then could turn around and bill the insurance company. It’s a lengthy process, with many delays, but they (clients) always pay. Our customers are good for payment, but this is inherently an industry with long payment terms.”

Where to turn?

Unfortunately, even though VE had an established growth record and strong financials, its bank – like most financial institutions these days – was unwilling to extend credit. As a primarily service-based business, the company was limited by having little in the way of tangible hard assets to meet increasing bank collateral requirements. After going through the same exhaustive and cumbersome process of filling out paperwork, speaking with loan advisors, and waiting patiently to see whether it was lucky enough to receive any type of financing at five other banks, VE found itself in the same situation: a growing company without access to much-needed growth capital. 

Copfer continued to consider all available funding options, hoping to find some way in which his growing company could continue to thrive while working through its issues of obtaining on-time payments from clients. The company even briefly considered equity funding but was not willing to give up part of the ownership. 

“Slow-pay is by far one of our greatest challenges,” Copfer says. “If we can’t find the capital we need to protect against extended payment terms or take advantage of growth opportunities – and the increased cash needs that come along with that growth – then we’re unable to maintain the day-to-day operational requirements or grow the business. For a high-tech company such as ours to stay competitive, it’s imperative that we have access to a flexible source of capital to maintain our cash position and reinvest in technology when the need arises.”

Access to capital 

After struggling to keep the company’s cash flow positive, Copfer found relief, flexibility, and dependability with The Receivables Exchange. In October 2009, VE began selling select receivables of some of its best customers on the Exchange in order to gain access to capital at a lower cost. By participating in regular monthly auctions, the company has been able to enhance its transaction history, which has enabled it to lower its cost of capital significantly. 

“Our auctions sell so fast that I’m still amazed at how easy the whole process works; it really is cash flow at your fingertips,” Copfer says. “And the best part is that we receive the capital the next business day, wired directly into our bank account, and it’s completely hassle-free.

“Our growth was strictly based on our ability to access capital. Now we can take advantage of opportunities to grow our business and increase our market share knowing we will have access to funding when we need it – on our terms. We’ve been able to maintain existing longstanding client relationships by extending their payment terms without sacrificing cash flow or our customer relationships.” 


For more information on The Receivables Exchange, visit www.ReceivablesXchange.com/IARP or call (800) 658-5880.

Laurie Azzano is senior vice president of marketing and head of corporate communications at The Receivables Exchange. She has worked with small and midsize venture-backed companies for nearly two decades, helping them to improve their business performance through strategic marketing and communications.