When a business finds itself facing financial headwinds—whether it’s slower-than-expected revenues, unexpected project cost overruns, or an unanticipated downturn in the broader market—the stakes become high. In these moments, conversations mainly revolve around preserving control and setting the stage for long-term success. As a leader who’s seen companies navigate these turbulent waters, I firmly believe that effective solutions stem from leveraging creative financing options, staying ahead of covenant requirements, and leaning on those deep client relationships you’ve invested in over the years.
Essentially, renewing business vitality often boils down to three critical strategies: employing factoring arrangements for immediate liquidity, being proactive about creditor rehabilitation when covenants are under strain, and strengthening customer relationships through honest, vulnerable dialogue.
1. Leverage Factoring to Keep Projects Moving When Cash Flow Tightens
When liquidity is the immediate concern, factoring can be a straightforward and effective tool. Rather than waiting out long payment cycles, factoring allows you to leverage your accounts receivable for immediate capital. Let’s say you’re taking on a large infrastructure project with high upfront costs where your suppliers need to be paid, your labor force must be mobilized, and materials secured. Traditional financing might not be readily accessible if the balance sheet is under strain. Instead, you can turn to a factoring partner who will advance a percentage of those receivables at the moment so you can bridge the gap between project inception and customer payment.
Moreover, factoring can extend beyond the conventional arrangement of selling your own receivables. Many factoring firms today are open to supply-chain factoring, which allows you to secure funding not just against what’s owed to you but also to help manage supplier relationships and costs. For example, let’s say you’ve secured a $5-million contract. Factoring can offer immediate working capital to ensure smooth execution without waiting for the client’s payment to trickle in months later. This infusion stabilizes your operations and can even help you stay within lending covenants by improving short-term liquidity metrics.
While factoring may not address every covenant issue directly—your lender might still view it as a form of peer debt—it often buys you some extra time and operational freedom to focus on delivering projects and meeting benchmarks.
2. Safeguarding Financial Control through Proactive Covenant Management
Of course, access to immediate liquidity alone doesn’t solve every problem. A critical mistake leaders often make is neglecting to ensure that they stay ahead of their lending covenants. When a business is leveraged, maintaining compliance with lender requirements is paramount. If you breach a covenant, the repercussions can be severe. You may find your credit facilities restricted, restructured, or, in worst-case scenarios, terminated. Being “out of covenant” can trigger costly default letters, onerous loan amendments, and, at times, even force an exit from the lender’s portfolio.
The key is to be proactive and predictive. Before you’re face-to-face with a covenant breach, you should know it’s coming. Take the time to model your financials forward, especially when considering large projects or market shifts. Ask yourself whether you can stay within these covenants six months down the line. If the answer is no, begin working with your lender immediately. You might need to negotiate revised terms or explore alternative lending products that better suit your evolving situation.
In many instances, lenders appreciate foresight and honesty. It’s far better to approach them ahead of time—when you still have strategic options—rather than waiting until you’re in default. Communicate what’s happening in the business: Why are you stretching cash flow? Which new projects or expansions are on the horizon? How do you plan to course-correct? When lenders see you’ve done your homework and have a plan, they’re more likely to grant you breathing room in the form of amended terms or new credit facilities.
3. Building Deeper Client Relationships Through Vulnerability
When times get tough, it’s tempting to put on a brave face and try to solve everything internally. But some of the best solutions emerge when you’re open and honest with those who rely on your products or services. If you have a client relationship that’s built on trust, consider having a straightforward conversation with them about what’s happening in your business. You might be surprised at their willingness to adjust payment terms, provide partial mobilization fees upfront, or even negotiate more favorable invoicing structures that match your situation.
Achieving these adjustments isn’t always as simple as sending an email. Sometimes, it means booking a flight, sitting down face-to-face over dinner, and explaining the situation candidly. It takes a degree of vulnerability. Yet it’s precisely that vulnerability—and the recognition that you’re in a long-term partnership, not just a series of transactions—that can persuade customers to throw their weight behind you. People understand that businesses face challenges, and more often than not, they’ll respect your proactive and honest approach. In fact, these challenging times can transform a once-transactional relationship into a more profound, collaborative partnership. There’s real power in admitting that you need a bit of help, provided you do so with professionalism, strategic thinking, and a willingness to reciprocate when the situation stabilizes. You never know, you may just find yourself returning the favor for that client in the future.
Turning Distress into Opportunity
In periods of distress, the immediate response is often to tighten the reins and scramble for short-term fixes. However, sustainable turnaround solutions require a more holistic and proactive approach. The ultimate goal is to maintain control of your destiny rather than ceding it to lenders, market fluctuations, or unanticipated project costs. This requires forward-thinking strategies, consistent communication, and a willingness to embrace new financing tools. At the end of the day, these measures are put to ensure that once you’ve emerged on the other side, you’ve fortified your relationships, improved your financial architecture, and positioned your business for renewed and lasting success.
