Larger Working Capital Credit Facility to Fund New Sales Orders

Enterprise– Global Hardwoods Lumber Distributor

Background : 55-year old family owned company is experiencing strong sales growth opportunities from current and new customers, particularly from international markets. Prior growth was internally funded supplemented by a bank line of credit, both of which were limits on new customer orders. The current lender did not include international A/R in borrowing base.

Financial Facts : Annual Sales - $38 million (30% international, which would grow to 65% with pending orders). A/R Average - $4.5 million. A/R Turns – 8.4 times. Gross Margin – 14%. Credit function handled by Sales/Shipping Staff. 

Objective : In addition to covering explosive export sales growth, the company was interested in leveraging their A/R assets better within a larger borrowing facility. This would free up precious capital, maximizing their strong international sales opportunities within prudent credit guidelines. 

Solution : World Trade Consult, LLC structured a domestic and international trade credit insurance protection plan that provided Named Buyer coverage on all new international customers, in addition to the company's domestic customers. 

Outcome : Policy was assigned to lender who included International A/R in borrowing base, increased the borrowing advance rate to the company, making an additional $1.6 million available to fund sales growth (without shareholders having to inject additional capital into their company). 

Additional Working Capital Debt Calculation

Average A/R $4.5 million
Prior Allowed A/R (Domestic only) $1.6 million
Prior Advance Rate 75% (Domestic only)
Availability from Bank $1.2 million
New Eligible A/R Borrowing Base $4 million
New International A/R Advance Rate 75%
New Domestic A/R Advance Rate 85%
New Available Bank Debt $3.15 million

Review of Benefit and Cost 

Additional Working Capital Provided by Bank $1,950,000
Gross Margin 14%
Additional Gross Profit to Company $273,000
A/R Turns 8.4 times
Possible Increase in Annual Profit for Company $2,293,200
Total Annual Premium - Trade Credit Insurance $97,400