Business Lending Staff
What to look for when building your business services program.  

By Jim Devine, founder, chairman and CEO of Hipereon Inc., Seattle. 

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Windsor Family CU serves local small business owners.

Newsletter Puzzle

Given the following business scenario, how much can the accounts receivable collection turnover rate change before it erodes the company’s ability to comply with its debt service coverage ratio requirement?

Sales                                        $2,794,200

Annual Debt Service                 $     46,400

Required DSCR                                   1.45

Available cash                          $   136,500

AR Turnover                       4.6x or 79 days

Calendar

CUES School of Business Lending^™
School III: Strategic Business Lending
Date: Sept. 20-24
Location: Crowne Plaza Seattle Downtown

CUES School of Business Lending^™
School I: Business Lending Fundamentals
Date: May 02 - May 06, 2011
Location: Hyatt Regency Cambridge 

CUES School of Business Lending^™
School II: Financial Analysis and Diagnostic Assessment
July 25-29
Location: TBD

CUES School of Business Lending™
School III: Strategic Business Lending
Date: September 19-23
Location: TBD

Newsletter Puzzle Solution

1^st Step: Determine annual cash requirement = $46,400 x 1.45  =  $67,280

2^nd Step: Determine excess cash = $136,500 - $67,280  =  $69,220 excess cash

3^rd Step: Determine annual ARs = $2,794,200 ÷ 4.6  =  $607,435

4^th Step: Add excess to AR = $69,220 + $607,435  =  $676,655

5^th Step: Recalculate new AR Turnover = $2,794,200 ÷ $676,655  =  4.1x or 89 days

Accounts receivable collection period can deteriorate from 4.6x/79 days to 4.1x/89 days or simply 10 additional days. If it deteriorates an additional 10 days the company will not be able to stay in compliance.