31. August 2009 by admin.

Have you ever had one of those days, weeks or months when it was just hard to stay motivated.  Everybody does.  Now you can get a weekly kick in the #%* from a gentleman named Dave Navarro (no, not the Jane’s Addiction guitarist).  I’m not sure how I stumbled upon his website, but I liked it and was intrigued.  So I signed up for his “Weekly Kick in the #%*” newsletter, and now, without fail, an email awaits me every Monday morning to get my week moving in the right direction.

Now Dave doesn’t make any money directly from the weekly newsletter, but he does sell books and services from his website.  I haven’t ventured there yet, but I have been impressed with what I have seen so far.  If you need a little boost, give it a try.  You can find it here.

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26. August 2009 by admin.

Factoring is one of the oldest forms of business financing. It is known that it was used at least as long ago as the period of the Ancient Roman Empire, when merchants would enlist the help of collectors in order to settle trade debts. The primary reason for factoring’s long history is that it addresses a promenant business problem…cash flow.  The truth is, the companies of many years ago, as well as modern companies today, have what is called a working capital gap.  That is, they must pay employees, supplies and overhead well before they receive cash from their customers.  This is where factoring has always been a part of helping businesses.
 

Early Factoring in America

Factoring made its way to America almost as soon as the pilgrims did. Many early American merchants made use of factors in order to sell tobacco and cotton abroad: they would ship their goods to England where a factor would take a percentage for selling and collecting money owed, and English merchants would do the same using American factors. In this way factoring played a pivotal role in rapid growth of American industry – without factors it would have been much more difficult for merchants to maintain a steady cash flow and trade of goods overseas.

As the American economy grew, American factors were able to concentrate more and more on domestic business. From the early colonial factors, and group of around 40 large factoring companies descended, based mostly on the east coast, that played a major role in financing the textile and transportation industries until the early 1950s. In the early part of the 20th century these factoring companies began to establish percentages of receivables that they would advance companies upon the purchasing the invoices, usually around 70%-80%. This provided much of the large amounts of capital needed in these industries.

The mid 1950s saw the emergence of smaller businesses using factoring to address cash flow issues, moving the factoring industry away from the exclusive realm of large industry. As smaller businesses began to make use of factoring, the industry grew rapidly and became more competitive. The result was a trend towards mergers beginning in the 1970s that saw the number of large factoring companies reduced to around 10 by the end of the decade. At the same time, banks and other large financial institutions began to offer factoring services, and the business of factoring became the domain of large, institutional organizations.

The Impact of Invoice Factoring on Today’s Small Business Trends

The factoring industry more or less remained this way until fairly recently. The last 10 to 15 years has seen the re-emergence of small, independent factoring companies catering to a much wider range of businesses and needs. This trend has created a split market with a few mammoth factors targeting traditional factoring industries, and many small factoring companies that are continually creating new markets.

This trend towards newer, smaller invoice factoring companies is a reflection of contemporary business trends. The pace with which smaller companies develop and operate, particularly in the competitive technology and service sectors, requires a steady cash flow that can’t always be provided by receivables. An example of this can be seen in the emergence of temporary staffing agencies. These companies have large payrolls and depend heavily on cash flow. The competitive nature of this industry puts many temp agencies in a position where their payroll is due before their invoices are, and many smaller factoring companies have come about to provide solutions for this gap between payables and receivables.

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17. August 2009 by admin.

The Interface Financial Group has been providing invoice factoring services in the US and Canada since 1972. We call it invoice discounting, but others call it invoice factoring or spot factoring. I often talk to clients how to best finance their business. Many times, when they start exploring factoring they focus solely on the rate charged per invoice. Although discount rates are important, focusing only on this percentage is the wrong way to evaluate factoring options.

The smart way to determine the best factoring option is to first examine the needs of your company, and compare them with the arrangement the factoring company is offering. How much money do you need? What percentage of the your invoices do you need advanced?  What about invoices a client doesn’t want to factor, do payments for those have to go through the factor as well?  Is there a cost to switch to another factoring company or financing source, or will the factor allow you to freely switch if you are unhappy with their service?  Is their a minimum fee when factoring an invoice, or is the rate prorated daily?  Are there any fees in addition to the discount rate, such as application fees, wiring fees, due diligence fees, or monthly management fees?

IFG’s service, spot factoring, competes by using flexibility and a straight forward pricing structure to gain clients.  There is no setup fee, no long term contract, no minimum or maximum dollar limits. Our clients use our factoring service as needed. The cost of money is calculated on each invoice for days the money is outstanding and the percent advance on that invoice. You can easily control the cost of money and only use it as needed.

Standard factoring, which Interface also offers, has an application fee, a term contract with dollar limits, monthly minimums, early termination fees, etc. The cost per invoice is less than invoice factoring, but it comes with a volume and time commitment. This is a better option for companies that need to factor most of their invoices year round.

All factoring companies are not alike!  When looking for factoring, make sure to ask the right questions.  Although most people like surprises, typically they are unwelcome in the world of business finance.

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12. August 2009 by admin.

Whenever I speak to a potential factoring client for the first time, I always feel like there is a big blue elephant in the room. The client knows there is a cost, but might be afraid to ask. Typically, the new client views a factor as someone that is taking money out of their pocket. You see, they have gone through all the effort of selling their product or service, manufacturing it, delivering it, and now they sit and wait for the checks to arrive. But they don’t. Their customers pay when they are ready, not when the client needs the money. What are they to do?

So they call IFG. And suddenly, instead of receiving 100% of the amount they billed their customer, they are going to receive something less. This is not a happy moment for a client. Unless…

Factoring has existed for hundreds of years. Why? Because companies that factor invoices provide a valuable service. It makes no sense that if factors left their clients in a worse position instead of a better one, companies wouldn’t use them, and there would be no more factoring companies. Why would a company factor invoices if it left them worse off? They wouldn’t. The answer lies in the discrepancy between what the client usually thinks is important, and what really is important. Let me explain.

If a client sells widgets to Customer A for $100, they expect to receive $100. But when they factor the invoice they may receive $97, so they feel they lost $3 somewhere in the transaction. However, if the client is able to sell more widgets to Customer A and also acquire Customer B because he has the cash to purchase more inventory, his bottom line profit improves, and that is the value of factoring. Most business owners get so caught up in the size of top line revenues (or at the very least, net revenues), that they forget about what is really important, having the cash to run their business and produce larger bottom line profits.

I have found that all of IFG’s clients eventually understand this concept. For some it happens before our first spot factoring transaction. For others it might take a few months. However, it is irrational for a client to continue to use factoring if they are worse off for doing so. Sure, there is a cost for factoring, but if the value received when factoring exceeds the cost, it is an effective tool to help grow a company’s profits. And isn’t that why we are in business in the first place?

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11. August 2009 by admin.

Today I was browsing the internet looking for news regarding our industry, and I stumbled upon a few things that slapped me across the face.  The first was a press release that was configured to look like a news story.  I won’t name the company, but the title said, “XXXXX Offers Assistance to CIT Customers Seeking Alternative Sources of Small Business Financing.”  The article went on to point out CITs December 2008 receipt of $2.3 billion in bailout money, and that Company XXXXX were ready to help out businesses that are “currently relying on CIT for financing, as these CIT customers may soon be unable to find alternative financing, and could slide into bankrupcy along with CIT.”  Very subtle.

 This example of a finance company disguising its true intentions (stealing CIT’s clients) with the altruistic message (offering “assistance”) is a common one.  However, when the reality of the situation is revealed, it can leave a bad taste in the client’s mouth.  I once sat on a financing panel along with a commercial lender from a large national bank.  The audience was a bunch of young, aspiring entrepreneurs.  He gave one of the most honest statements I think I may have ever heard.  This is not a direct quote, but the message was something like this.  We are not your friends, we are a business.  We are in the businesss of making money.  We loan money and expect to be paid back on time with interest, period.  Compare that to this advertisement by American Express:

A little different message, right?  Now I don’t mean to pick on Company XXXXX, or American Express, or any other company for that matter.  I just wish businesses, financial or otherwise, would be more honest.  The truth is, very few people own or run a business just for fun.  Most, including myself, are in it to make some money, and there is absolutely nothing wrong with that.  I just wish they wouldn’t go to such lengths to convince people otherwise.

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4. August 2009 by admin.

I received these figures from a friend of mine at Raymond James.  I found them interesting, so I thought I’d post them here, but not before adding one tidbit of my own.  Did you know that since 1968, more people have walked on the moon (12) than have pitched a perfect game (10)?

Now here are the rest of the facts: 

1.        INTEREST RATES - The yield on the 10-year Treasury note peaked at 15.84% on 9/30/81 or nearly 28 years ago.  The yield on the 10-year Treasury note closed last week at 3.48% (source: Federal Reserve). 

2.        CORPORATE BONDS - Low interest rates nationwide have influenced US corporations to issue $903 billion of bonds through the first 6 months of 2009, +65% more bonds YTD than from 2008 (source: BondDesk Trading). 

3.        WANT A LOAN? - 14% of the nation’s $1.9 trillion consumer debt (e.g., credit cards, car loans, store cards) is expected to default during the current recession.  Historical default rates for credit card debt during past recessions has reached 7-9% and has been less than 5% for unsecured consumer loans (source: Financial Times).    

4.        PAY DOWN DEBT - 2 out of every 5 Americans (40%) would pay off their home mortgage or credit card debt if they received a $50,000 gift as opposed to spending or saving the funds (source: MetLife, USA Today). 

5.        OVER? - The cover of today’s (8/03/09) Newsweek magazine declares “THE RECESSION IS OVER!”  If our recession did end last week, then it officially lasted 19 months, the nation’s longest since 1933 (source: Newsweek).  

6.     NOT WORKING - 36% of current US retirees between the ages of 55-75 retired sooner than they originally planned as a result of job loss, poor health, or an early retirement buyout from their employer (source: SOA).  

7.     BOOM-BOOM - “Baby boomers” are traditionally thought of as the 78 million Americans born between the years 1946-64.  Of the boomers born in 1955 or earlier (i.e., the group turning ages 54-63 in 2009), only 31% are financially prepared for retirement as of today (source: McKinsey, BusinessWeek). 

8.     WORKER COST - The average employer pays 43 cents in benefits (e.g., Social Security, unemployment insurance, workers’ compensation, health insurance, retirement plans) for every $1 paid in salary (source: DOL). 

9.     THE VALUE OF EDUCATION - The average net worth of American families headed by a person that received a college degree is more than 4 times as large as the average net worth of American families headed by a person that received only a high school diploma.  This data is part of the 2007 Survey of Consumer Finances collected by the Federal Reserve and was released in June 2009 (source: Federal Reserve). 

10.     THE BEST CARE? - Almost 3 out of every 5 Americans (59%) believe US health care is no better than “average” or even “below average” when compared to other industrialized nations (source: Pew Research).  

11.     PERFECTION - Mark Buehrle of the Chicago White Sox threw a perfect game on 7/23/09 against Tampa Bay , the 2nd no-hitter of his 10-year career.  Buehrle was drafted by the White Sox in 1998 in the 38th round (out of 50 total rounds) with the draft’s 1,139th pick.  The same umpire (Eric Cooper) was behind the plate calling balls and strikes for both of Buehrle’s no-hitters (source: Major League Baseball). 

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3. August 2009 by admin.

Throughout the years we have been in this business, we have found there are several reasons why people look to The Interface Financial Group for invoice factoring.  Historically, the number one reason has always been that the small business could not get a loan due to two reasons, credit and/or time in business.  Historically, banks could provide loans to companies if the owner of the company had good credit, and had been in business for at least two or three years.  Anything that fell below those requirements were usually kicked out of the bank and referred to a factoring company (if the company had accounts receivables).

Today, we are hearing from more business owners that had lines of credit or credit cards, but recently received a phone call from their banker telling them that their credit limits have been reduced or the loans will be eliminated in a few weeks.  This is occuring all over the country, as this article from an Oregon newspaper explains.

The Interface Financial Group is ready to service these clients, as our credit requirements haven’t changed despite the current economic situation.  Furthermore, we finance companies using a criteria that is far different from the traditional lending criteria most banks use.  This allows IFG to assist companies that have recently seen their ability to borrow reduced during the last few months.

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