The Factoring Force BIG Blog

In some rather astonishing comments about the place of factoring in the current recession, Stephen Troy, the president of AeroFund Financial, Inc., stated that “Factors and asset-based lenders are in an unprecedented position to capitalize on the tight credit markets right now. So much so, that this recession may just be paradise for some.” He also described the recession as “Nirvana” for specialty lenders.

Paradise? Nirvana? How many industries are hearing this sort of gushing assessment of their prospects during the worst economic crisis in over 80 years? But, according to Mr. Troy, “asset-based lenders and factors are sitting in a surprisingly strong economy with lots of wounded competitors” and this translates to unprecedented opportunities.

In Mr. Troy’s opinion, there are a lot of companies with a desire to expand and grow and the banking industry is not in the position to help them. Entrepreneurs will seek to start businesses and banks will be reluctant to provide loan services. The “specialty lenders” will be there to do the job that the banks can’t or won’t do. Factoring companies will be able to do what they do best…put cash in the hands of business owners quickly so the business owner can stay solvent and expand.

The recession is a disaster for many. Everyone is eager for some good news in a bad times. Why shouldn’t it be about us?

In a rather astonishing turn of events, the under-the-radar industry of receivable factoring is flying well above the radar and right into the mainstream during these tough economic times. An article published on Yahoo Hot Jobs website by Joy Victory, of Payscale.com (Joy Victory? Seriously?) identifies factoring as one of top professions during the coming year. The article, titled “10 Hot Professions for 2009,” states that the recession is making factoring an attractive option, especially for smaller businesses, since business are so much harder to come by.

Not only is accounts receivable factoring a “hot job,” it is apparently a quite lucrative one also. Ms. Victory states that the average yearly salary for a factor is nearly $80,000! It was the single highest salary for the 10 professions cited in the article.

Now everyone will want into the act.

Accounts receivable factoring seems like a pretty basic concept if you just read an introductory article about the concept and practice. Basically, for a small percentage, an individual or company advances you the cash due from your receivables. The factor makes money on the transaction by collecting more than they advanced and the recipient company receives cash possibly months before they would have received it if they had waited for payment.

But it’s just not that simple.

If you want to gain some insights into the process and the potential advantages of factoring, Ozark Capital Funding has prepared an E-book that presents some of the ins-and-outs of factoring. Unfortunately, I can’t tell you how to order it or what it costs. The E-book, titled “Accelerate Your Cash Flow With Invoice Factoring,” is being promoted on the OCF website blog but there is no purchase information although, apparently, you will be able to purchase the book through Paypal.

I’ll tell you more when I have had a chance to gain access to the book and review it.

Most of the factoring transactions we refer to are conducted between factoring companies and small to mid-size business operations. I came across a press release this morning that refers to accounts receivable factoring at an entirely different level.

The release was to announce that a company called China Security and Surveillance Technology (CSST) had reached an agreement with the Industrial and Commercial Bank of China (ICBC) for accounts receivable factoring. CSST won the bid to supply security and surveillance equipment for what is called the Kunming Safe City Project. The deal is worth 204.9 million RMB which is the equivalent of about 30 million U.S. dollars.

Essentially, the bank will acquire all of the receivables from CSST and pay CSST the entire amount due (less fee of course) upon completion of the project. The Kunming Municipal Government will then pay ICBC over a period of 5 years.

It is interesting to see factoring handled at this level. Still, the concept is identical to even the small business transactions we see. The company (CSST) sells receivables to a factor (ICBC) and gets their cash much faster than they would if they had to wait for the government of the city of Kunming to pay them. And, obviously, the bank has determined that the fee plus the value of the receivables assett allows it to make a profit. Seems to me that everyone wins.

I am going to be paying more attention to factoring assets and receivables at the international level.

I have seen a lot of info online about invoice factoring but most of it is promotional and sales oriented. But today I came across an article in a regional mainstream business publication which indicates to me that more businesses are starting to discover accounts receivable factoring and the benefits of this approach in a tough economy with tight credit.

An article in the Central Penn Business Journal describes the growth in interest about factoring as a financing option by focusing on the experience of Sentinel Funding Services in Dauphin County, PA. Seems the company has experienced a surge in inquiries as business loans have become more difficult to obtain and many smaller firms experience cash flow squeeze.

The freight and medical industries have known this for quite a while. Now, everyone wants into the act.

I like to cruise around on YouTube later at night when things have settled down and I want to chill out. My favorite thing to do is look for live performances by musical groups from my younger days. That would be back in the heyday of progressive rock in the 1960s and ’70s. I am forever discovering groups and songs that I had forgotten about and I just sit there and get nostalgic for the good ol’ days.

One thing that amazes me about YouTube is how much other information there is on there besides music videos and silly people trying to become famous doing silly things. For example, I looked up the term “freight factoring” and found dozens of promotional videos for factoring companies. What I was hoping to find was some sort of straightforward information on the do’s and don’ts of freight factoring but I found a lot of slick sales videos instead.

But I wanted to post a video and I figured I’d give a plug to a guy with an entrepreneurial spirit by the name of Jack Martin. Jack runs a business called A1 Freight Broker Training and is aggressively using vehicles like YouTube to promote his business. Below is Jack’s brief video referring to freight factoring. Keep on truckin’, Jack!