The Factoring Force BIG Blog

In a press release issued today, Homex, one of Mexico’s leading home builders, announced their satisfaction with FOVISSSTE, a Mexican mortgage company, for implementing a factoring program with Mexico’s National Development Bank.

The CFO of Homex stated that the factoring initiative “will help us realize important efficiencies in our collection process.”

Now I’m not quite sure what the CFO is referring to here or what exactly the structure of the factoring program is. It is not really clear who is receiving financing. It appears that Homex is able to factor receivables through this program but receivables from whom? If consumers are purchasing directly from Homex and they are receiving mortgages from FOVISSSTE, then that is merely a mortgage loan. Somehow, payment is expedited in this process but the details are pretty murky.

So, I would advise the Homex PR team that, if they want to maximize the impact of an announcement such as this, it would help to give more details as to exactly how this benefits them. It appears that the financial and investment community is the target of this release but I’m not quite sure what the analysts are supposed to glean from this type of statement.

If I come across anything else I’ll publish it but if anyone else can shed some light on this let us know with a comment.

While the last post introduced Receivables Exchange and the new concept of bidding to be the factor for a company’s receivables, the same Wall Street Journal article presented another factoring related service presented by FTrans Corp. in Atlanta.

FTrans is addressing an issue which keeps many banks from participating in receivable factoring and that is evaluating the invoices being presented for factoring. The article mentions that most banks are not set up to monitor and evaluate the invoices presented for factoring. The way it works is that a company seeking to receive a line of credit from its bank posts its invoices on FTrans. The invoices are evaluated and confirmed and the bank then has the information it needs to determine whether to provide financing against these receivables.

What FTrans does, essentially, is to open the door to banks to pitch another service to their business customers without having to staff an entirely new department. Based on the feedback provided by FTrans, the bank determines what percentage to advance against the invoices and what fee to charge.

This goes back to some of my earlier comments that banks are taking notice of the amount of business out there for receivables factoring. Companies like FTrans are making it easier for them to become involved which just increases the amount of competition for the factoring industry.

Next up… how smaller companies can get lower rates on their receivables financing.

Shame on me! I don’t know how I missed this but an article in the Wall Street Journal online edition just introduced me to Receivables Exchange, LLC. This company is described as the eBay of receivables financing and it may be a serious and threatening entry into the world of factoring.

The article describes the plight of a company called Data Drive Thru, Inc, a software company that had introduced a successful product but was having trouble generating the next round of capital funding due to the banking crisis. The company decided to leverage its hefty portfolio of receivables from some very well-known and reliable office supply retailers. But instead of shopping around for a factoring company, Data Drive Thru turned to Receivables Exchange where they posted their invoices and let anonymous lenders bid on the receivables.

Whoa, daddy! Anybody but me see some pretty significant implications for the receivables factoring industry here?

There were a couple statements that caught my attention in this article. First, the title of the web page is “Borrowing Against Receivables Gets Cheaper, Easier.” I think after reading about Receivables Exchange I don’t need to comment further.

Here’s another one…“Borrowing against receivables isn’t new… But with interest rates sometimes exceeding 30% or 40% annually and tales of unsavory business practices, this small corner of finance is considered by many to be a funding source of last resort.”

Translation - “Factoring receivables is really expensive so avoid it at all costs”

There are a couple more innovative programs with implications for the receivables factoring industry profiled in this article. I’ll get into them in the next two posts.

” ‘Cause I’m the tax man,
Yeah, the tax man.”

Well, here we are in June and I’m reminding you of the unpleasantness of taxes via the lyrics of the late George Harrison. Thought you were over that tax hump, huh?

I’m only reminding you because G. M. Filisko reminded me in a piece over at Bankrate.com. The article provides 6 methods that small business owners can utilize to pay the IRS for taxes due. Some of them are what you would expect to hear like “take out a home equity loan” or “put it on your credit card.” Great, just what we need…more debt!

But, wait a minute. There it is at #6. “Sell your receivables.”

Now that is novel. A small business owner avoids incurring more debt by leveraging existing assets. Seems to me that all we hear is that we are in this mess because we have incurred too much debt and saved way too little. But by factoring receivables, the small business owner can pay off “the man” and keep the business afloat at the same time. No debt. No payments. Complete solvency.

Small business factoring can address a variety of debt and cash flow scenarios. Even Mr. Harrison might take advantage.

“And my advice to those who die,
Beware the pennies on you eyes.
‘Cause I’m the tax man,
Yeah, the tax man.”

In yet one more step towards gaining full acceptance as a valid and viable method of financing, the practice of receivables factoring was fully embraced by a bank in South Dakota this week. First Bank & Trust, of Madison, SD, has launched FirstLine Funding Group, a freight factoring entity which will operate as a division of the banks commercial lending group.

The division is being staffed by a team of seasoned freight factoring veterans and will service trucking firms and independent truckers nationwide. While the focus is esclusively on factoring freight invoices at the moment, the group will likely expand into servicing other industries in the future.

When a bank introduces a receivables factoring division, it is another clear indication that the mainstream financial sector is realizing that invoice factoring is a truly legitimate financial service and not just some shady financial scheme targeting poor credit risks and desperate business owners.

I am reminded of a similar relationship within another industry. I liken it to the way the healthcare industry has viewed massage therapy for a very long time. Massage has been practiced since ancient times, not just as a method of stress reduction but as a serious healing practice. But as modern medicine evolved, massage became just another one of those alternative medical practices that was offered in gyms, spas and chiropractic offices. It was the poor man’s physical therapy.

But nowadays, there is more acceptance of massage therapy as a valuable healing tool and more and more therapists are being employed in what is now termed medical massage. Many a doctor’s office will now have a therapist on staff and will prescribe their services a s part of a treatment program along with medications. Massage has moved out of the realm of healthcare voodoo and into the limelight of the medical community.

As evidenced in Madison, SD, receivables factoring is also edging into that type of limelight. I predict that more and more banks will begin offering factoring services. And banks do need all the help that they can get.

It’s time once again for the “Invoice Factoring Video Roundup!” Yee Hah!!

We have scoured the Internet (actually we spent about 36 seconds on YouTube) looking for the finest representations of the asset factoring industry presented in video format. Our winner this week is “Platinum Funding Group” for their scintillating video presentation of a company press release in January of 2008.

Company spokesperson, Daniella, a business development officer, presents the release about a series of information and networking events planned by the company. My two favorite parts are the mesmerizing details about the neo-gothic design elements of the Bush Tower in NY followed closely by the production crew loudly turning the page on the flip chart which Daniella (an attractive trouper) is using as a teleprompter.

Seriously, I know that it is effective optimization to include video as part of your online marketing mix. But every now and then we need to remind ourselves that potential clients or existing clients may actually see this stuff. Factoring companies are sometimes lumped into the same category as payday loan companies by the allegedly more sophisticated members of the financial industry elite (many of whom are either unemployed or in the process of being bailed out by generous Democrats). We should look and act the part of the sophisticated international industry that we represent.

Plus, dammit, we’re making money. So lets look the part.

Wade Henderson of http://www.IMMFinancial.com has crafted an article that places the dilemma of the smaller businessperson relative to the plight of the corporate giants that are in financial trouble. Wade indicates that the “Big Players,” as he calls them, have the advantage of turning to the government when things get rough and they need some assistance.

The “little guy,” however, has no one that is eager to help them out considering that there is no major ramifications if they fail. A few jobs and some tax revenue loss. No big deal. But if Citigroup fails, we’re all doomed. So, who’s there for the little guy.

No one.

Banks don’t want to help because they are now completely risk averse. So if a smaller business needs help staying afloat, the primary lending institutions are too busy keeping themselves afloat to worry about Ma and Pa and there 15 person printing company.

But receivables factoring companies are an option for these smaller concerns when the banks that are being bailed put, bail out on the little guy. By factoring receivables, a company can let the assets already on the books go to work for them now. As factoring companies purchase these invoices the company receives an expedited infusion of cash and gets to keep the wheels of small business industry turning.

Small business is responsible for something like 80% of the new jobs created over the last decade. And if the traditional lending institutions are going to ignore the Little guy then the little guys will work around them. Factoring receivables is one way to make a detour around the Big Players.

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.