Steel River was working on its first very large project – a $50 million one to be exact.
At the onset of the project, the large customer had agreed to pay within 15 days. This would make it possible for Steel River to continually purchase supplies, pay subcontractors, and meet payroll and other ordinary and unexpected expenses.
Things went as planned until one day they did not.
The client suddenly stopped paying on 15-day terms.
Suddenly, Steel River was facing waits lasting “months and months and months” for payment.
As a startup, Steel River didn’t have a significant amount of cash on hand. They also didn’t have an extensive track record to help bolster their credit line with the bank. “Executing a $50 million project on a $1 million line of credit will place a lot of financial stress on the organization,” said Steel River’s Finance Lead Kevan Mikkelsen.
While $1 million is a lot of money, such a credit line wasn’t enough to meet this project’s needs. And, the bank wasn’t willing to lend more money or extend more credit.
In addition to owing money to their suppliers, they also faced a $1.2 million payroll hit just four days out.
They weighed their options. Naturally, with the client extending payment terms, they could have stretched their own payments out just as far to suppliers. However, they recognized that similar actions would have had a very negative impact on their relationship with vendors and suppliers.
When the expected payment wasn’t hitting their account, they had a second option.
The Steel River team decided to “get paid faster.”