The Factoring Force BIG Blog

It continues to fascinate me that receivables factoring has such a prominent and public profile in Asian and European countries. While it seems to me that most of what you read about receivables factoring in the U.S. is purely self-promotioanl by factoring companies, the financial news from overseas regularly mentions asset-based factoring as a component of a corporate profile or as an integral element of some type of major capital funding initiative.

Case in point… I read a press release today that announced that China Security and Surveillance Technology, Inc. (CSST) was awarded a contract tp provide some type of service in the development of what is called an E-city in Nanjing, China. An E-city, as I understand it, is a type of infrastructure designed to support a variety of digital support services for the growing technological needs of businesses, government and citizens. (Of course, I may be understanding it entirely wrong but this will do since it is only incidental to my primary point of interest.)

What struck me in this release was the quite specific role that receivables factoring would play in the financing of this project for CSST. The release states:

The project’s construction will be subjected to specific installation arrangements separated
into several phases, and corresponding revenues will be recognized upon
completion of each phase. In addition, the Industrial and Commercial Bank of
China (”ICBC”) will provide accounts receivable factoring service and working
capital financing facilities for each phase of the project.

In other words, ICBC will be factoring the invoices that CSST passes on to the Chinese government and making sure that CSST stays solvent while they await payment. That’s pretty blatant stuff.

Later on in the release, the CEO of CSST states:

As we had firmly established cooperation with large
Chinese local banks in the past year, we are confident in our abilities to
undertake big projects and believe that the receivable factoring agreements
will fully satisfy our working capital needs. In addition, as we continue to
push ahead with our bids for larger government contracts, we believe that the
factoring agreements and other financing arrangements will continue to serve
as strategic advantages and key factors in winning our bids.

The CEO is pointedly crediting factoring as an essential “factor” in enabling CSST to be competitive and land large government contracts. Somehow, I wonder if this sort of frank declaration would be viewed bu U.S. financial agents as a positive or negative.

Maybe it’s a cultural thing.

I read a press release from IFG Network that announced that their 4th Quarter 2008 accounts receivable financing increased 40%. The company did not indicate whether the +40% was vs. the prior year or the prior quarter. Because IFG provides invoice factoring to construction companies, one of the assessments of this development was that it may be signaling some positive momentum in the housing market.

Now I would hope that this is true. It would be nice to read any financial tea leaves that seem to be predicting renewed strength in the economy. However, based on the information contained in yesterday’s post, in which the CFA stated that increases in receivables financing was up due to a tight credit market, I found myself wondering if the statements by IFG were on target or not.

Granted, a 40% increase in extended credit is a positive thing for a financing company. But is that really an indication that things are improving in the housing market or is it simply a further reflection of the difficulty that any business is having obtaining credit through mainstream banks and lenders? It’s not like new home construction has altogether ceased. Many building projects continue and it is likely that more would be happening if credit were more readily available. But it seems to me that many builders may be leveraging current assets to keep some activity going and move existing projects forward.

I hope that IFG is correct. We could use some good news. But I’m not certain that IFG’s strong performance in the 4th Quarter is as much an indication of a revitalized housing sector as it is of a still constipated credit pipeline.