A privately owned manufacturer of industrial refrigeration equipment lost an important customer and suffered a sudden downturn in sales revenue. The market for the client’s product line was stable but acquiring new customers required long lead times. At the same time the client was repaying long term debt from an acquisition and utilizing a revolving bank line of credit for short term borrowing to meet seasonable and normal cash flow needs. The sales decline negatively impacted EBITDA and the company was unable to meet the bank’s loan covenants at year end.
The company’s president, now a NextLevel partner, worked with their controller and bank to renegotiate the covenants on the revolving line of credit. Asset based criteria were agreed to with the lender, which required the implementation of additional reporting on inventory and accounts receivable by the client. The president also communicated regularly with the client’s major suppliers to explain the situation and to work out a payment schedule for accounts payable. A rolling 13-week cash flow planning process was put in place to ensure that the company could meet payroll and continue operating during this crucial period.
- The client was able to maintain its relationship with the lender and moved back into compliance on the loan covenants within six months.
- The company president helped the lender understand its business in more depth and, as a result, the lender agreed to use a modified set of ratios better suited to evaluate the company’s credit worthiness.
- Supplier relationships were preserved and even improved; as the client caught up with past due payments and the suppliers received regular and accurate information about payment timing.
- The 13 week cash flow planning discipline became standard practice at the client, even after the company recovered its sales momentum and improved its EBITDA.