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How
to Tell When Your Client
Needs Financing
As a key resource to your clients in financial matters, you can help your clients recognize the warning signs or symptoms that could impede or constrain their businesses before it’s too late.
What happens when your client hasn’t asked for help, but you see an opportunity that necessitates credit?
Address the issue head on.
The best way to further strengthen and entrench your client relationships is to have on-going open dialogue. This gives you the opportunity to proactively spot financial issues that may help your clients head off turbulent financial periods.
Read
the Vital Signs
Here are some signs that your clients’ financial health may require debt infusion or a re-financing:
ü Restrictive working capital or liquidity stresses appear in your clients financial records, such as:
§ Your own invoice is aging on the A/P report
§ Accounts payable balances are past due and getting worse
§ Increases in A/R dilution (returns, adjustments, write-offs)
§ Erosions in order backlog
§ Sustained margin erosions (in select industries like technology)
§ An over-reliance on short term debt to finance long-term assets.
ü You see strains in capital availability
§ Client is growing through mergers and acquisitions
§ Unusual events and non-recurring items have depleted working capital, i.e., divestiture of unprofitable operations like plant closings, one-time inventory markdown or theft.
§ Your client has purchased out minority interest, partner or retiring shareholder
ü Growth capital needs are running faster than cash availability
§ Client describes frustration in situation where order backlog increases, their borrowing under formula is maxed-out and they want to realize the built-in profit in unfilled orders.
ü Lenders are showing signs of concern:
§ Lender requested re-appraisals of fixed assets
§ Current lender is cutting back on availability
§ Request denied for capital expenditures line from the lender
§ Your client has found equity unavailable or too expensive
Left unheeded, companies that recognize these symptoms but who wait to treat them, or worse – rationalize the symptoms away – risk making small financial troubles larger and more difficult to resolve in the future. Frequent monitoring, preventative care, informed decision-making and an integrated treatment help provide your clients with long term stable outcomes.