The Effects of Concentration on Your Business
Concentration is when a single customer or a few customers account for a sizeable portion of a company’s total sales. Large concentrations of business are hard to avoid when you’re growing a business but at the very least, it’s important to be aware of its possible consequences. For one, if your customer has credit problems, you may have trouble getting payments owed to you. When non-credit-worthy customers have a problem, you have a problem.
On the flip side, if a concentrated customer is credit worthy, they have a lot of buying power. The danger being they can start dictating terms. But if you do a detailed analysis of that customer, you may see they’re not really worth better terms because margins on their sales will be slim.
Another concern with any concentrated relationship is the possibility of losing that customer altogether. No matter how great the relationship, if, for example, the buyer changes, that customer’s business with you can dry up leaving you in bad financial shape. Or, the new buyer could change the terms or slow down payments which could even go as far as putting you out of business.
For all of these reasons, it’s important to try to mitigate having concentration with any one or just a few customers. But if you do take the risk, make sure you’re aware of all of the possible outcomes.
About Celtic Capital
Companies looking for working capital to cover operating expenses, fund growth, increase buying power and take advantage of vendor discounts and rebates turn to Celtic Capital. With an appetite for the more complex transactions, Celtic Capital has a history of success in crafting creative, flexible asset based financing solutions from $500,000 to $8 million with no financial covenants.
As an independent lender, working with companies nationwide, Celtic Capital is willing and able to alter price and deal structure and expand lines of credit to handle its clients’ increased revenues; and when cash flow is an issue, will look toward providing an inventory facility to help offset lost cash flow.
If you know of, or are, a business in need of non-traditional financing, contact Mark Hafner at 800.742.0733 or mhafner@celticcapital.com, or visit us at www.celticcapital.com.