Replies to post #313853 on Spongetech Delivery Systems Inc (fka SPNGQ)

[spongeboy]

FACTORING IS GOOD!!!!

Factoring exists for manufacturing companies in massive growth phase. Just like Spongetech.

Think about it - You are a small business and get a multi-million dollar order to produce widgets (or sponges) . Where do you get the money to buy the raw materials and labor to fill the order? You have several choice.

1. You use a line of credit (Interest starts when you buy raw material)

2. You use operating cash (you still should impute a "oppertunity cost" that is lost because cash is being used for production cycle.

3. You get raw materials on credit from vendors with a net90 due date ( Interest starts 45 days later - interest free loan for 90 days or 1.5% per month terms)

4. You get a bank loan or IB toxic loan by pledging warrants or convertable stock. (could cost 40%)

Getting the raw materials on interest free credit is best. So now you make your widgets (or sponges) and ship to Wal-Mart, but Wal-Mart does not have to pay you for 90 days. Cash flow is zero. How do you pay your supplier? WOW Wal-mart Sold out and reorders another multi-million dollar replacement order. WOW we need more raw material --how do we get the money? (see 1-4 above) The best option is to factor the recievables from the first order, pay the suppliers and repeat the process. If Wal-Mart reorders again we are broke. Factor- Build- Ship- Sell- Reorder- rinse and repeat- Grow baby Grow.