A sign the economy may be recovering

An articles in the Miami Herald talk about how the temp job market has been creeping up since June. I have spoken in the past about why this is good since it's a leading indicator of job recovery. By leading indicator I mean that an increase in staffing agency activity "leads" and increase in the job market. The reason is simple, many company owners prefer to hire temps before hiring perms. However, if things get better, many of those temps may become perms.

This is good for invoice factoring companies that offer staffing factoring.

We'll need to see how other parts of the economy perform, but it would appear that a very very very mild job recovery could be underway. Sure, you lose jobs through layoffs, but other people are gaining jobs through temps. However, we are still far a away from positive employment numbers.

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Construction Factoring in 2009

Needless to say, 2009 was a horrendous year for the construction industry. No surprise there. As you can also expect, many companies that offer this variant of invoice factoring stopped doing so. That happened for a couple of reasons for this:

1. The quality of construction credits dropped dramatically
2. Institutions that finance factoring companies asked them to avoid the industry due to risk
3. Minimal ability to hedge the risk through insurance products

All in all, finding a company that offers construction factoring has been tough. And it will remain tough for the foreseeable future. There are some companies that still offer it (like us!), but those are few and far between. If you own a construction company that is looking for construction factoring, here are a few things you can do to increase your chances of sucess:

1. Get your financial statements in order
2. Get your taxes in order. Unpaid taxes (especially employment taxes) are account for many denials. But remember, some factoring companies can work with you on an IRS plan.
3. Get you A/R in a presentable form. Make sure that your invoices are paid in at least 60 days
4. Be prepared to jump through hoops. Factoring companies are a little bit scared of the industry so they will ask a lot of questions.

You can also learn more about construction factoring here.

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I Have a Business Loan - Why can't I also use Factoring?

I have seen a spike of clients that have small business loans and who also are requesting invoice factoring. They are usually surprised when they find out that 99 times out of 100, both products are mutually exclusive and can't co-exist. They just can't have both. Why?

The reason is simple, when you get a business loan the bank will usually file a security statement - or a UCC. In that UCC they will (again, usually) put that Accounts Receivable is part of the collateral they require. In simple terms, if you default on the loan, they can seize your accounts receivable to repay it. Because of this, you can't sell the invoice to the factoring company.

Many times they will secure their position this even if you are getting the loan to buy an asset, such as real estate. It's just how many banks operate and protect themselves.

Unless you can convince your bank to release their position on the accounts receivable - you wont be able to secure invoice factoring or many other types of business financing.


Disclaimer: This post should not be considered legal or financial advice.
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Why will a Factoring Company file a UCC Lien?

Most of us who speak to factoring clients on a regular question are used to answering the common "Why do you have to file a UCC lien on my company?" question. Let's discuss the concept of a UCC lien as it pertains to the factoring industry.

Usually, factoring companies operate by buying your invoices for a discount. They buy the invoice by making an upfront payment (the advance) followed by a second payment (the rebate) that comes once the invoice is actually paid. In return for this, they get the full payment of the invoice.

But how do you "buy" an invoice? Think of a conventional product sale, something like a TV. You go to the store, pay for the product and then you get to take the TV home. You have physical possession of the TV therefore you own it.

Buying an invoice is a bit more complex since it's just a piece of paper. What a factoring company actually buys is the financial rights (or payments) that are described in that piece of paper. As you can imagine, it's pretty hard to get physical possession of a "financial right".

The way to get "possesison" of that right, for lack of a better term, is by filing the UCC statement to assert the financial rights. It helps protect the interest that the factoring company has in the invoice/s by announcing they they have a financial right to it.

UCC filings can be complex and have important consequences for your company. Unless you understand the ramifications of them, it's best that you have an attorney review this and explain it to you.

Disclaimer: This post should not be considered legal advice. Do not rely on this post to make any legal or financial decisions. UCC Liens are complicated instruments and you should consult an attorney if you have questions or need advice.

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Interested in invoice factoring? Read the invoice factoring blog to learn more or learn about factoring in canada.

A Good Signal - Job Openings

Today, the WSJ posted an article about the increase in job openings in the US market. Obviously, this is a positive indicator, that combined with the increase in temporary staffing positions may be a prelude of better things to come.

I'd like to remind everyone that even as "better things come", unemployment will increase as I mentioned in a previous post. This is because of how the statistic is measured.

A number of factoring companies are seeing an increase in their business as well, which is good. Factoring is an interesting economic indicator. Activity tends to increase as recessions start and bank offer fewer business loans. Likewise, factoring activity also increases as the economy improves. The latter because business activity is increasing but the economy is not at a point where banks are lending aggressively. Said differently, invoice factoring activity and business loan activity usually move in opposite directions (even though they are not perfect substitute for each other).

One important disclaimer - this theory I just mentioned is widely discussed in factoring circles.... but I have never seen as study to prove it. This, it's hear-say.

One last note - thanks to all our Veterans for their courageous efforts!

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Interested in invoice factoring? Read the invoice factoring blog to learn more. You can also check out our factoring articles.

Unemployment > 10% - Now What?

The big news today - the jobless rate is over 10%. What few people seem to be mentioning is that things will appear get worse, before they get better. But that may be a good thing.

Huh? Again, Huh?

Yesterday I heard an article on NPR . It described how the unemployment number is calculated. It's done using a household survey of people who are looking for work. The interesting thing is that it does not always count people who are unemployed and NOT looking for work. Many of these individuals are discouraged and are not even looking. But technically should be counted as unemployed.

As things get better, many of these individuals will re-enter the job search, potentially increasing the number of people counted as unemployed and thus increasing "unemployment".

Clearly the unemployment indicator alone is not a good measure of the health of the economy. We also need to look at increases in the hours worked per week (a sign that employers are working their current employees harder) and new jobs created.

One indicator of how the economy and employment are doing is the staffing industry. As I mentioned in a previous post, employers always try to hire temps before hiring permanent employees. An increase in this number should be a harbinger of good things to come. The latter is even true for factoring companies since many of us offer factoring financing for staffing agencies.



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The Financial Crisis and Factoring Companies

In September of 2008 I wrote a post about how the financial crisis was affecting factoring companies. Of course, when I wrote the post I was referring to small and mid sized factoring companies who are usually backed by bank loans. I'll have to admit that I never imagined that CIT would declare bankruptcy.

What is more surprising is that the markets seems to have shrugged off this event, at least so far. The Wall Street Journal had an article on their front page saying they expect stocks to bounce today.

I guess not many people seem openly concerned with the bankruptcy of the largest small/medium sized business lender in the country. I sure hope I am wrong but I see it as a big deal - which possibly could affect or delay the slight recovery that the economy is experiencing.

I will be writing more about this later. Have a happy Monday!
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CIT Declares Bankruptcy - It's Official

I have spoken about my concerns regarding a CIT bankruptcy in a couple of posts (one is here and another one is here).

CIT is one of the biggest suppliers of business financing to small and medium sized businesses. They are also the biggest factoring company in the USA. If this bankruptcy is not handled correctly it could have a severe negative effect in the US economy and it's recovery. Why?

Well, most companies that use factoring do so because it helps them improve their cash flow. Specifically, they use factoring because it enables them to meet important expense obligations - such as supplier expenses and payroll. Mishandling their factoring operations could affect the ability of their clients to handle these payments - it's repercussions would certainly ripple across the economy.

As this article in the WSJ pointed, some CIT customers are starting to look for alternatives. I have seen this first hand because some of their customers have consulted with us about providing them with factoring financing.

As I have said in the past, I wish CIT, their employees and customers the best. And I for one, am keeping my fingers crossed and hoping that the bankruptcy has minimal or no effect in their customers.

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Is the Recession Really Over?

Today I woke up to articles posted in a number of places stating that the recession was (unofficially) over. You can read about it here and here. Is this good? Yes. Is it time to party? Sure, why not? Are we out of the woods? No. Not by a long shot.

GDP grew from previous low mark by 3.5%. While solid growth. Let all remember that we are clawing back from a really low mark. Hopefully it will keep up. However, let's remember that:

1. Small and medium sized businesses are still finding it hard to get credit or business financing. Conventional business loans are still hard to obtain.

2. Unemployment is still sky high. Double digits high if you count people that have stopped looking and those under employed.

These need to be addressed if the recovery is going to have any teeth.

This year has been particularly interesting for the factoring industry. It's no secret that many factoring companies bit the dust - either because their financing dried up, made bad deals or both. One thing is clear from my perspective though. I have seen an increase in factoring deals in the past quarter. And the trend is increasing. To me, this seems to indicate that there is more activity and therefore some signs of a recovery. With any luck, these companies will start hiring employees, who will then start buying stuff.

Want to learn more about factoring and purchase order financing? Please try our business financing resources area.


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Interested in invoice factoring? Read the invoice factoring blog to learn more.

Ethical Issues and the Housing Mess

Sometime ago I had a real estate agent visit me - unannounced. Basically she was looking for customers and asked if I knew anyone buying or selling a house. During our conversation I shared that I was actually trying to sell my house and was hoping to move to a better place. However, I have been trying to sell my place without any success for close to a year.

The agent's recommendation: Buy a new place anyways and eventually let the bank take over my current home (by foreclosure of short sale specifically).

I think that this is the worst recommendation anyone could have given me. I found it distasteful, dishonorable - and just plain wrong. I didn't say this out loud of course. I merely played stupid and naively asked "But, won't that kill my good credit?"

The agent's response: Don't worry. Everyone in Miami has bad credit. That doesn't matter.

One has to wonder how many agent's like this are around in Miami and other places. I think that they basically contribute to make things worse and do so for their own gain. In my case, the agent knew that I was comfortable making my home payments but eager to change residences. Their advice boils down to suggesting that I take more debt (over leverage myself) and then default (for all practical purposes) on one of the loans. Basically, I should stick the bank with the problem.

Sorry, that is not good advice - not for me anyways. I like to do my best to honor my commitments. And a mortgage loan is a commitment. And I really can't see who we are going to get out of the current housing mess - when you have certain agents making this type of recommendations.

Here is a Miami Herald article on the rising foreclosures. And another one on the unemployment rate. Thsi should add some nice background to what I mean...

Extra Notice: This article is not to be considered as financial or personal advice. As always, consult a specialist and use common sense if you need financial or legal advise.

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Interested in invoice factoring? Read the invoice factoring blog to learn more.

The Neverending Story of CIT

I have posted about the goings of CIT for the past few months. The worlds largest factoring company is in trouble and it's unclear that they will avoid bankruptcy. Although I am a big proponent that no big institution should be too big too fail, I also believe that a messy failure of a big institution could spell a lot of problems for the improving economy.

Here is an article about CIT.

Will a hypothetical bankruptcy of CIT be messy? I have no specific information here other than my own experience and I think it could be messy. I think that any major financial bankruptcy - even if executed in an orderly fashion - could have far reaching consequences. Why? Because of the current economic environment. Even though we have not seen a major failure in a year, the FDIC is still closing banks on a weekly basis. Things may be improving, but they are not good. Not yet. A messy failure of CIT wont help at all.

As the biggest provider of invoice factoring in the world, a lot of companies have their fates tied to CIT financing. Clients that do factoring with them depend on their funding to meet payroll and pay suppliers. Those suppliers and employees depend on those funds to live. It's easy to see how a messy CIT failure could create a chain reaction of untold size that ripples through a big segment of American small business. And medium sized businesses. And some big ones too.

So if CIT fails and goes through bankruptcy, I hope it is done in a way that keeps this fact in mind.

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How Bankruptcies Affect Small Business Owners

The Wall Street Journal has an excellent article about how a business bankruptcy can affect a small business owner. Basically, the article describes how business bankruptcies affected small business owners because of one of two things:

1. They were sole proprietors, thus the business and the person are one and the same

2. They were Inc's or LLC's but the owners had signed personal guarantees, pledging personal assets

In a few cases, the owners seemed surprised that either #1 and #2 had gotten them into trouble when their business went down. The main cause seems to be (as a super compressed summary) that they did not know what they were getting into.

Any company or individual seeking financing must usually sign a contract. I believe it is the responsibility of the individual/company to read and understand the contract. Let me emphasize the following: read and understand. Your best bet is to always get advisers who can understand what you are getting into and explain it to you in plain English. Saving a few dollars by not employing advisers may cost you a lot - possibly everything - if things go wrong.

By the way, it is very normal for financing institutions to request a personal guarantee when financing a business. This is how they protect their interests. And, it also ensures that the owner if fully committed to the success of the company. Many institutions will not provide financing without a guarantee. Your job is to read it, understand it, consult with your advisers and determine whether it's a risk you and your company are willing to take.

Note: This article is not legal or financial advice. Always consult a competent advisor if you are seeking legal or financial advice.

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Interested in invoice factoring? Read the invoice factoring blog to learn more or check out our factoring website.

Things are Shaping up in Canada

You have to admire how Canada has skirted most of the dangerous parts of this Great Recession (as people call it). In a recent article from Canada Business Online, they mentioned that Canadian retail sales for the second part of the year should be positive. This is very good news for all involved including , consumers, retailers and the factoring or purchase order financing companies.

I recently wrote about this in my other blog. You can get the article about the recession here.

Overall, the Canadian economy has fared much better than other economies. There are many reason for this, too many to list here.

This presents an interesting opportunity for Canadian companies. Many small and medium sized businesses are in a stronger position than their US counterparts. This makes them attractive to Canadian factoring companies and US companies as well. Due to this, many Canadian companies could be in a good position to negotiate financing agreements - though we mustn't forget that the world economy as a whole is still recovering.

It will be interesting to see how the holiday season, with it's high retail sales expectations, plays out.

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A Surge in the Staffing Industry?

US Treasury Secretary said that the US economy is showing signs of a recovery. My bet is that staffing agencies will see a surge in the business. Why? Simple, most firms will be reluctant to add full time employees until the recovery is well underway. Hiring a staffing agency to provide temporary employees will help companies ramp up without fully committing. This has been true in the past and I bet will be true in this case.

With this, we will also see an increased demand for staffing agencies that need factoring. Staffing agencies usually have invoices payable in 30 days but must pay their employees on a weekly or bi-weekly basis. Factoring can be a key solution for staffing companies that have good contacts and prospects but little capital.


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