Throughout its history, the scrap metal industry has seen periods-such as now-when metal prices fluctuate rapidly and dramatically. These conditions can produce both great profits and great losses, and they can pose a challenge to the ongoing financing of a scrap metal business. The biggest challenge comes when prices are rising. A scrap facility might receive payments from customers to whom it has sold scrap that are lower than the payments it then must make to purchase more scrap at new, higher prices. The gap in working capital caused by a lag in the accounts-receivable value compared with the accounts payable-coupled with changes in product mix and volume-can leave scrap processors looking for additional financing. They generally turn to three sources: additional equity contributions to the business, adjustments in payment terms with their customers and/or suppliers, and debt financing. The first two options can be difficult to arrange quickly and have certain drawbacks, so businesses most often meet their cashflow requirements by borrowing.
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