Exploring Alternative Financing Options

For nearly a decade, Pinnacle Precision Services, LLC, through its turnkey solutions and its commitment to providing highly skilled craftsmen and owner supervision, has established itself as a national provider of specialized contracting services to the energy and utilities sectors, including nuclear power, fossil power, petrochemical, oil refinery, chemical and pulp and paper. From innovative techniques for reducing outages and improving plant efficiencies, to a steady focus on job safety, quality assurance and scheduling, Barry Ivey, Owner and Projects Administrator of Pinnacle, continues to grow the company’s distinguished customer base to include Southern California Edison, Siemens Westinghouse Power Corporation (SWPC), Entergy, Steam Generating Team (SGT) and some of the nation’s largest general contractors. “As a smaller company in a niche market, we take ownership of our projects by ensuring that we have the right personnel to manage the job from start to finish, allowing us to separate Pinnacle from our larger competitors,” remarked  Ivey.

Payroll Demands Strain Cash Flow and Slow Growth
For many specialty contractors, dealing with cash flow challenges is an all-too-familiar struggle. They typically have substantial labor burdens, requiring a significant amount of capital to cover wages as well as all related costs such as payroll taxes (FICA, FUTA and SUI), disability, workers’ compensation benefits, employee claims and union benefits packages. This burden is compounded significantly when customers request extended payment terms of 30 to 60 days, or even longer in many cases. Such scenarios can often threaten a company’s ability to pay bills on time and meet payroll obligations on larger projects.

For Pinnacle, managing cash flow effectively is the key to maintaining growth.  “Due to the nature of our business, the majority of our costs come from labor expenses, which has sometimes forced us to negotiate non-industry-standard terms with our customers in order to meet weekly payroll obligations,” said Ivey. 

How to Increase Sales Without Access to Capital
Even a thriving, profitable company such as Pinnacle can be challenged by the fluctuations in working capital requirements presented by growth opportunities. Pinnacle was limited in its ability to take on larger projects and needed to find a way to improve working capital management.

“We had reached the maximum on our LOC and, even with our strong financials, our bank wasn’t willing to increase our limits. And, while a bank line works for securing additional materials or for equipment financing, it is not flexible enough to meet fluctuating increases in payroll obligations, especially the multi-million dollar payroll obligations that we commonly have. To take full advantage of our growth opportunities, we needed alternative financing options – traditional bank financing simply wasn’t going to allow us to grow at the pace we wanted,” commented Ivey.

Due to the blanket lien imposed by his LOC, other asset based financing options such as factoring were not a fit. Many required that the LOC be completely paid off.  The few factoring companies that did seem more flexible offered rates that were too high to make it an affordable option. “Many contractors turn to factoring because they feel it’s their only option. However, the rates were not appealing to us and I wasn’t comfortable potentially risking our customer relationships by having them notified that their receivables were being sold,” added Barry.

Flexible Source of Working Capital Leads to Growth
Pinnacle joined The Receivables Exchange in November of 2009, drawn to the flexibility of being able to gain access to competitively-priced capital as often or as seldom as needed, especially compared to the constraints of bank financing or factoring. By having multiple Buyers compete to purchase its outstanding invoices, Pinnacle was able to regain control of its cash flow management and achieve a much better cost of capital.

“The Exchange offered us an entirely new way to manage our cash flow that was cheaper and faster than anything I had previously encountered,” he stated. “It really was a win-win situation in terms of timing and pricing. And, it allows us to remain in complete control of our financing – from choosing only those receivables we want to sell, to setting all of our own pricing terms, and maintaining our relationship with our customer. My first auction closed in a matter of a few hours and the second one closed in minutes, at a significantly lower cost.”
 
By getting the cash they needed – on their terms – Pinnacle now has the flexibility to take on more projects and is no longer forced to negotiate non-industry-standard terms. “The Exchange provides us access to the short-term capital we need, when we need it, to meet our increasing payroll demands and drive growth.” he said. “As a project-driven company, we can now aggressively seek out larger projects and become more competitive in the bid process, knowing that we can rely on the Exchange to help us manage our cash flow needs.”

Everyday more companies are discovering that they can find early success on The Receivables Exchange. Learn how to become a Seller on the Exchange and turn your receivables into cash and gain quick access to the capital you need to grow your business on your terms. Find out more about Pinnacle Precision Services, LLC.