The Factoring Force BIG Blog

At the recent annual meeting of the International Factors Group (IFG), the Polish company Pekao Faktoring was named as the #1 factoring company in the region. The IFG meeting was held in St. Petersburg (Russia, that is) in October.

Of course, the company was thrilled with their recognition and the president,  Mirosław Jakowiecki, declared, “I am proud of these realizing that such a position covers not only Poland. It means, Pekao Faktoring is the best Factor in Central – East Europe as well.”

Of course, my fascination with the international factoring community led me to explore the Pekao Faktoring company website to see what this firm is about. Fortunately, the website has an English translation version and I was able to review the entire site in my native tongue. The website is attractive though a bit lacking in substantive information about factoring and the services provided by Pekao. Naturally, I’m comparing this to the sometimes terribly wordy and overblown sites that many U.S. factors present online.

There was, however, one very unique statement that appeared right on the About Us page of the Pekao Faktoring website. It reads as follows:

“Pekao Faktoring is a company fending for employees helping to develop professional skills and guarantying workplace for mothers with child. The team grows, within last two years in the families of Pekao Faktoring employees 25 children were born.”

Now I dare you to find me one other major finance company that boasts of the birth-rate of its employees. Apparently, Pekao is looking for a few good women and is willing to create a family friendly workplace to attract them. So Pekao is not only the #1 receivables factoring company in the region, it is a factoring company that factors in the well-being of the families of its employees. And that is a strong factor in their favor.

Na zdrowie, Pekao! Stolat!

We hear a lot these days about companies that are too big to fail. Appears that CIT is not too big to fail but is too big to go into bankruptcy without causing a lot of chaos for its factoring clients. (Image courtesy of European Pressphoto Agency)

According to an article in the Wall Street Journal online edition, the

upcoming restructuring and likely bankruptcy of CIT may have a serious impact on the thousands of small-to-medium size companies that make up the factoring client base of CIT. The reason? Cash flow.

Apparently, the very issue that receivables factoring is designed to address is the problem CIT may have after restructuring. After all, invoice factoring for small businesses provides the cash flow that would not be forthcoming quickly after invoices are issued. If CIT doesn’t have cash after settling with its debtors, then how can it purchase the invoices of its factoring clients and provide the needed cash?

There is something utterly ironic here, don’t you think? So who factors for the factors?

Heavyweight investor Carl Icahn has offered to provide a loan of up to $6 billion to ailing receivables factoring giant CIT. Icahn is a bondholder of CIT and is not in favor of the restructuring plan proposed by CIT and is countering the proposals of the lender with a restructuring plan of his own. Icahn has been highly critical of the CIT management team and believes that new management would have a much better chance of receiving favorable consideration from banks.

CIT provides factoring services for as many as 1 million companies. These include retailers and suppliers who would be challenged to maintain operations if cash flow were suspended. With the holidays fast approaching, these companies can ill afford to see funding suspended from what is essentially the lifeblood of their business.

It is astonishing that one company’s distress can affect so many other businesses. It points out the critical importance of receivables factoring and the vulnerability of those who depend on those services. I’m sure that these companies were receiving favorable terms from CIT due to their size but it makes me wonder whether a few dollars in savings is worth the risk of being a minnow in the ocean of CIT’s client base. Just as community banks are still thriving in a down economy, smaller, more nimble factoring companies continue to support thousands of companies during these troubled times. I’m sure that there are many companies re-thinking their approach to receiving accounts receivables factoring support from mega-lenders in the future.

By the way, doesn’t Mr. Icahn bear a resemblance to Mel Brooks in this photo? I can assure you that there is a lot of “High Anxiety” among those involved in the CIT debacle. Board meetings at CIT probably resemble the campfire scene in “Blazing Straddles.” Lots of gas being passed.

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.