Monday, October 31, 2011


BEA has released Q3 advanced estimate of GDP.  2.5% growth.  Much better than the sluggish Q2 figures, and we still have to see how the Q3 numbers will be revised.

Friday, September 9, 2011

Factoring as an Option

It doesn't seem all that long ago that factoring was considered a horrible, last ditch option for funding and that the impression customers got of it was that your company was six feet from six feet under.

With the credit markets still artificially tight due to the Fed paying on reserves and Washington DC too captured to prosecute or hold accountable the greedy who caused the mess we are in, alternative sources of business funding are coming to the fore and are being accepted and promoted as valuable methods of financing in a very challenging environment.

It is often a concern of business owners: What will my customers think if they were to find out I factor my receivables?

While this is something that should be considered (and discussed with a potential factoring partner - how is the customer interaction really handled?) it is essentially a reflection of the business owner's own worry about perceptions relating to their business and their abilities, not so much an issue for the customer base.  Psychologically, we as humans do not want to show weakness.  This is particularly true of those of us who are incapable of bearing children due to...shall we say, the lack of necessary equipment for doing so.

Factoring is not necessarily a sign of weakness - granted, there are situations where a company might be in such a predicament that factoring may be considered, but if the company's going concern status is questionable, most factors will pass on funding the deal (DIP funding is an altogether different topic, but can be done also).  Actually, factoring your receivables can and should be viewed as a strength.  You are using other people's money to provide terms to customers, take advantage of early pay discounts with vendors, smooth out cashflow, cover payroll and expenses, grow your company, capitalize on new opportunities for growth, utilizing the credit decision support and invoice collection expertise of a specialized firm, and on and on.

Most companies that I work with have customers that range from small mom and pop stores to huge multi-nationals.  What we are finding lately is that many of the larger customers are well aware of factoring and how it fits into SME financing, and that the smaller mom and pop companies are finding out about it as well.  Interestingly, as of a few years ago there was a report that about 75% of small to medium sized business owners did not know about factoring and how it could be used to fund their business. More importantly, the idea of a vendor using factoring as a means to fund their business is becoming more widely accepted as "normal".

Take for instance the June 2011 issue of The Costco Connection.  A little background:  The Costco Connection is a magazine sent out to all Costco Members. It is the fourth largest magazine by readership in the US (8.3 million monthly subscribers as of December 2010, they print about 96 million copies of the magazine annually) and the second largest among households earning $250k or more per year (it lost out to People Magazine, why readers are interested in the comings and goings of overpaid celebrities is still beyond me...surprisingly it beat out National Geographic who was third on the list). 18% of The Costco Connection readers are millionaires, and 55% own their own businesses.  Not bad for a magazine printed by a retailer/wholesaler.

In the June issue, there is an article on page 21 that discusses the cashflow crunch and how to deal with slow paying customers.  Factoring is referenced as a means to solve the issue. 

In the August 23rd edition of Business Week's Today's Tip, factoring is listed second (behind asset based financing, which can be almost as challenging to obtain as traditional bank financing in some instances) as a good option for financing a business.

As we head towards a still uncertain future with the economy and the markets weakened and staggering, factoring is a valuable alternative to fund your business.  Whether your bank is restricting availability, politely asking you to find other sources of funding, not funding on your export sales or purchase orders, or you might have a new business unable to secure traditional facilities, I would encourage you to look into factoring (and PO funding) as a means to achieve your goals.

Please feel free to contact me if you have any questions or if you would like a quote.

Sunday, August 14, 2011

Accounting Techniques for Factored Receivables

Okay. So, I have decided to factor my receivables to improve my cashflow and working capital position, but my CFO/controller is grilling me about how to account for factored receivables and the funds collected...what do I do?!

There are numerous ways that ledger entries may be made to account for the transactions, funds advanced, and reserves. It is incumbent upon the business owner to seek counsel and tax advice on the best manner to account for these entries. Generally, the business owner is able to successfully maintain a stronger balance sheet when using factoring versus taking on additional debt or equity partners.

Should you so desire, please contact me directly for a guide on how to account for factored receivables. My contact information is available at the top, right of this website.

Disclaimer: The information contained herein should not be construed as advice, guidance, or recommendations regarding financial reporting standards or practices, nor should it be used as basis for any claims now or under any circumstances against the author or Bibby Financial Services. It is the sole responsibility of the business owner to consult with their tax advisor and/or attorneys in matters relating to financial reporting. Bibby Financial Services holds no claim to the accuracy or authority of the information provided in this article, or any documents provided by author, or associate, and shall be held harmless in any adverse actions claimed by reliance upon the information provided in any form.

Wednesday, July 27, 2011

Why Do Factoring Companies Need To See So Much Paperwork???

Many people considering PO and/or AR funding have wondered why factoring companies need to review detailed transaction documentation. I have heard, "Well, the banks don't need to see that." It can be frustrating to have to submit so much paperwork, but the way a factoring company funds is based upon the transactions of a business, not solely on its financial statements.

The details of what is listed on customer POs, POs to suppliers, proforma and commercial invoices from suppliers, shipping documents and invoices to customers are of great importance in making sure that your transactions are done properly and that if anything should go wrong the documents can stand up in court. Items that may appear to be of no great importance generally are (Incoterms, shipping dates, cancel dates, payment terms, bill to and ship to addresses, etc.) and can be the difference between a transaction running smoothly with well established relationships and a distaster and damaged relationships. As in the rest of life it is the little things that really count.

Whereas a bank is mainly focused on cash flow and profitability, PO funders and factors are more interested in the credit quality of your customers and the performance capacity of your suppliers. When funding invoices and POs the key to the kingdom is solid paperwork.

Below is a testimonial from one of our clients which upon first reading is quite funny, but once you read it a second time you can see that by focusing on the documentation and flow of goods your funding company can actually help improve your successes and business processes. You can find it on our website here.

Working with Bibby Financial Services – what was it like? Well, it was sort of like hell.

Our company sells Tasers and police training to the Brazilian government. I had a two-week deadline to complete a transaction that involved multiple currencies, different time zones, multiple parties and numerous legal and governmental hurdles. And what did Bibby do? They held my feet to the fire. They made me jump through hoop after hoop. Each day, there was one more thing to do and then another and then another. They made sure every step in the process was completed on time and in excellent order. The result was a perfect transaction. So now we are doing it again.

Remember, nobody else could do this deal. Bank after bank denied my transaction because they wouldn’t do purchase order finance. Then, speed was everything because we only had two weeks, start to finish, to get the product to Brazil. And finally, this deal mattered to our company. A lot. Because this one sale was larger than all our sales for the previous year.

Here’s how the deal worked:

Our company won a contract to deliver $4 million in Tasers to Brazil. The first step was for the government to issue to us a non-transferable letter of credit through the government-owned Banco do Brasil, stating the firm two-week deadline. Because the size of the deal was so large, our company needed cash to pay the manufacturer ahead of time. Bibby stepped in at this point. First, Bibby insured that the bid process in Brazil and subsequent agreement were properly executed. The letter of credit was assigned to Bibby, who then sent third-party inspectors to the manufacturer to make sure the product complied with standards set by the Brazilian government. Bibby paid the manufacturer based on that report. Bibby also coordinated with the manufacturer, trucking company and freight forwarder to insure that the goods would arrive in Brazil on time so they could collect from the LC. The goods were shipped to Brazil by air and the Brazilian government paid the letter of credit via the Banco do Brasil, sending the funds directly to Bibby.

What was it like working with Bibby? All of the things that needed to be done were done. Bibby knew the process to keep things moving forward. Bibby has my respect – they came through when others wouldn’t. It was very special in a common way, but they did it in a very special and uncommon way.

What was it like working with Bibby? Fun.

Thursday, June 23, 2011

Recourse v. Non-Recourse Factoring

It's all about credit risk. If you sell on open credit to your customers, there will be times when you are concerned about repayment. The first question you should ask yourself is: Why would I sell on open credit to a questionable credit risk? The second is: Is it worth it?

I have seen so many business owners willing to stake the future of their business on a potentially profitable deal with a poor credit risk. Yes, the deal and margin may be attractive, but if the customer does not pay (for whatever reason), will it kill your company? Often people do not understand that all transactions are NOT created equal, and some of them, even though the return might be in the 30-40% range, are not worth doing. Think about it this way: If I had information that indicates the customer in this deal has a high probability of not paying, would I put my money into it? Why would a funding company if I wouldn't?

Recourse factoring allows for the funding advance of your receivables much in the same way a non-recourse program would, but there are major differences:

1. With recourse factoring you retain the credit risk of non-payment. In the event your customer goes bust or just doesn't pay, you are ultimately responsible for any funds advanced to you by the factoring company. With non-recourse funding, the factor takes 100% of the credit risk.

2. Recourse factoring is typically less expensive than non-recourse.

3. Non-recourse funders are very cautious about what debtors they will consider eligible for funding as they take on all the credit risk. Weak credit on your customers = probably not a viable non-recourse debtor.

4. Collection calls in a non-recourse arrangement may be more aggressive than in a recourse program. I qualify the "may" in the previous sentence, but my experience has been that clients have been bothered by the efforts of non-recourse funders to collect in some instances when the funder gets concerned about seeing their money back.

5. If you have quality customers who pay near their stated terms, what is the point of needing/wanting non-recourse funding?


Recourse factoring is typically less expensive, and with the addition of credit insurance can function similarly to non-recourse funding regarding risk. If you are selling to high quality customers (from a credit perspective), then recourse funding makes more sense. Also, factoring companies tend to be much gentler in their approach to verification calls/contact with your customers in a recourse arrangement.

Non-recourse funding is typically done in the trucking industry, though some factors will consider it in any industry provided the creditworthiness of the customers warrant it. Rates are typically higher than recourse programs, and advances can be limited due to debtor credit and concerns about repayment. If your main purpose of wanting a non-recourse program is to eliminate the credit risk of dodgy customers, then you are probably out of luck and need to reconsider using a recourse factor who will help you on the credit decisions and collection efforts.

Click here for a free quote/consultation.

Saturday, May 14, 2011

Bruce Rector: How to Attract Outside Capital Successfully

A colleague of mine has been kind enough to allow me to reprint here an article he wrote recently on how to attract capital. This is a bit outside the arena in which I work directly, but for some companies finding investment or a debt package may be the right way to go. Often it can work well with an AR / PO facility too.

Bruce Rector is the President of The Rector Group. He has worked with large and small companies across a wide variety of industries, including technology, healthcare, biotech, distribution, utilities, and consumer product manufacturing.

A graduate of the University of Virginia, with an MBA from the Wharton School, Bruce has established an enviable business consulting record in the areas of strategy, finance and operations, with a proven track record of value-adding engagements.


I've been having many conversations lately with CEOs and management teams about how to best position themselves to raise growth capital for their businesses. Companies are ready to start investing in their future again rather than just trying to survive. The good news is, with the right strategy, there is plenty of money out there ready to be put to work. Last month I did a quick tour around the state and visited with several venture capital and private equity shops. We discussed what companies should know when they are looking for capital. This article that I wrote for The South Florida Business Journal sums it up nicely and is a must read for business owners and entrepreneurs. While it is focused on early stage companies, the principles apply to all stages. Enjoy!

Are you ready for venture investors? You’ll have to prove it first.

Many early-stage companies seek outside investment capital in order to grow the company through additional infrastructure – both physical and human resources. I have met many companies through the years that eagerly sought funding and could explain why they deserved funding.

Passion is admirable, but regardless of how passionate you might feel about the opportunity the company is addressing, there are several criteria that management should consider in assessing the probability that they will actually be successful in attracting outside capital. Remember that any outside investor is going to take a very hard look at facts before deciding to invest. What are some of the facts they will consider?

Read more.

Thanks Bruce!

Fed Data Dump Part III: Elizabeth Duke's speech at the 2011 IFA conference in DC

Interestingly enough the good governor did not have much to say that had anything to do with factoring or PO funding. Did she realize that the International Factoring Association focuses on, mainly, non-bank lending? Apparently not. Her speech was all about the statistics related to traditional bank lending and had no bearing (or much interest) for those in attendance. Let me rephrase: I didn't get much out of it other than the impression that Ms. Duke was not very excited to be with us. She was pleasant for the most part, but did tend to deliver her presentation in a rather robotic and disengaged read-from-the-textbook manner and she danced around the pre-screened questions during the Q&A without actually answering them. Not too surprising.

Long story short: Bank lending is trending a bit upward year on year, but the recovery is fragile. Quit asking questions about Fed policy.

Wednesday, April 27, 2011

Great Post by James Altucher on Dreams of Greatness and the Reality of Business Ownership

I woke up at about 4am, made coffee, and read stories by Miranda July, Charles Bukowski (from his book “Hot Water Music”) Nora Ephron (from her book “I remember nothing”) and half a story from John Updike before I was ready to start my own writing for the morning. It was 4:47am when I got an instant message on Facebook. “Hi James. Can I just get one piece of advice from you”. I didn’t recognize his name. “Ildar” something.

The sun was just peeking through the curtains. I felt good. Within a few minutes, the first train going into the city would pass by the house. I like the sound of it. I don’t like to talk to people so early in the morning. I like morning sounds. Privacy. That’s why I wake up early to start writing. I wasn’t sure I wanted to IM with anyone at 5 in the morning. But…

“Sure,” I wrote.

He had a business selling eco-friendly bags. And he wanted to raise money from venture capitalists and wanted to know how to go about it.

Click here for full post.

Thursday, April 14, 2011

Fed Data Dump Part II: What they didn't want you to know

Looks like the data implies that there is more structural disintegrity in the system worldwide than initially believed. Lots of US taxpayer money went to overseas banks. I am at the International Factoring Association Conference in Washinton DC this week and will hear one of the Federal Reserve board members speak on how the Fed operates and her forecasts for the future. Should be rather interesting...will post more after her speech and Q&A.

Tuesday, April 12, 2011

Time to start reviewing your supplier contracts?

It may be a bit alarmist, but I am of the opinion that if your products are tied in any way to the commodity markets (they probably are even if indirectly), then you need to take time to review potential impacts to your COGS as prices start to escalate.

The world is in much turmoil lately and this has already pushed up the costs of numerous items. Your supplier(s) will have to increase their pricing, and this means you may have to consider the same. Time to start discussing these matters with your colleagues and representatives.

The marginal growth of the US market seems to be more of a propping up than structural soundness. Look for opportunities to take discounts from your supplier(s) and incentivize your customers with them as well to maintain solid cash flow.

I expect in the next few weeks to get back to the more detailed posting that started this blog, but I will continue to place these smaller posts in the mix.
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Wednesday, February 16, 2011

Link for post on inflation

Source: and

Unit Input Costs (and personal consumables) look like they are heading upward

I have been waiting to post on the topic of the pending inflation or deflation to get a sense from various economists and first hand experience.

My sense is that price indexes across the board are trending upwards, and I know well that I am personally paying more for items from coffee to gasoline.

My point here is to encourage you to look into this topic further and determine what preparations need to be made for your business to minimize the squeeze to your margins and find backup sources for you raw materials and/or components. You may also want to review your business structure and processes to find inefficiencies that may be eliminated.

With Federal, State, and Municipal debt at high levels, a rather moderate economic response to continued quantitative easing, weather related crop and arable land damage, and growing political unrest across the globe, watch your costs.

Feel free to call or email me with questions.

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