CIT Problems

Apparently the challenges for CIT Group continue. As posted in an article of the Wall Street Journal:

"While not as well known as the big commercial banks, CIT is an important test case for the Obama administration. It gives indications of the government's willingness to get involved with financial institutions that aren't deemed as too big to fail, but that play a significant role in the economy"

While it is probably true that CIT Group is not too big to fail, in the traditional sense of the word, if CIT goes down, so do the chances for a recovery this year. At least, I think so. CIT finances a lot of small and medium size companies, and also offers invoice factoring (although it's more than just a factoring company)

The government will be caught on a catch 22:

1. If it helps CIT, it may now be forced to bail out other institutions that are important yet not too big to fail.

2. If it does not help CIT, there is a chance that it will fail and create a substantial disruption in certain portions of the market, mostly small businesses. These "small businesses" tend to also be VERY important for job generation.

What a predicament.

I have a slightly unconventional view of this situation. The government should evaluate if the economic value generated by the companies in the portfolio is GREATER than the face value of the portfolio. If it is, helping out CIT should be a good investment in the short term. Whether it's a good decision or even the right one is another matter. I wish them luck though.

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

Freight Factoring on the Increase?

I have noted a slight increase in the number of deals that we are financing in the transportation industry. Freight factoring opportunities seem to be gaining some traction, which is good. I think that the transportation industry is a bellwether of the economy as a whole. Why? Well, someone has to drive the goods we buy, don't they? Now I can draw major conclusions from what we see, since we are not a large company. But an increase in freight bill factoring opportunities is certainly welcome.

We are seeing this both in the USA and in Canada, which is great. Obviously Canadian freight factoring opportunities are important as well since our economies have close ties.

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

Don't make this financing application mistake

Most factoring companies have seen an increase in the number of applications, in large part thanks to the whole banking mess. We have also seen an rather large increase in what I call "less than honest applications". Less than honest applications either lie - or - omit important details. Let me give you two examples.

Example 1: Company owner submits a factoring financing application. The application asks if the owner has ever had a bankruptcy. They answer with a NO. In reality they have.

Example 2: Again, company owner submits an invoice factoring an application. This time they leave the bankruptcy question unanswered. They have had a bankruptcy.

Obviously, what these owners are trying to do is to avoid disclosing the bankruptcy. in reality, the financing company will find about about the bankruptcy in their due diligence, This is 99.99% certain. What is also 99.99% certain is that your application will be slated for rejection. In example #1, the reason is obvious. The owner provided false information.

Example #2 is less clear, but it will probably be rejected. The owner could claim that they forgot to answer the question or that they did not see it. While possibly true, it will show that they did not check their application before submitting it (carelessness) and thus be slated for rejection. Sounds harsh? Well, would you accept a job resume that had typoes and was sloppy?..... Didn't think so.

So, what do you do if you have a blemish in your record. Whether bankruptcy or tax issues? Well, here is a post I wrote about the subject. But in summary: Be honest. Be upfront. No exceptions.

If you are looking for business financing you need to use honesty and disclose all problems. Unless your problem is an automatic deal killer, most underwriters will go the extra mile to help you if you are present an honest application along with a well thought out plan of how your company plans to use the financing. This is true whether you are looking for a simple business loan or going for an invoice factoring line.


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Interested in invoice factoring? Read the invoice factoring blog to learn more. You can also find information about factoring articles.

So your bank cut your business loan. Now what?

There is something odd going on in the factoring market. A number of the prospect that I am getting lately are "bank refugees". Well, refugee is perhaps not the best word. But basically these are companies that had their bank financing cut off. In this environment, having your business financing cut off is a death sentence.

What is odd, is that these companies were good. At least by our standards. I suspect that this has to do with banks preserving capital and shoring up their balance sheets. Remember, that for every $10 that a bank lends, it needs to have 1$ to 2$ in capital that is provided by investors. This helps cushion losses...... The problem is that many companies are left without their needed business loans. Of course, some of these companies can benefit from invoice factoring so they come to companies like mine.

So, if you own a company that has financing, what should you do? First and foremost, evaluate your own bank. Are they in a good position? You can get lots of information at the FDIC.

If you are not happy with what you find out, consider starting discussions with other institutions. You could call a couple and let them know that you are happy with your bank, but exploring alternatives.


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

Turn off the TV!

This is too obvious but it deserves a post. I was recently speaking to a prospect who needed some business financing ( specifically factoring ). Lo and behold, they were working from home and they could not be bothered to turn off the TV while speaking to me. Sounded like Jerry Springer in the background.... No apologies. No explanations. They just kept on talking about their big plans to sell to major stores......and how they needed financing.

I wonder if folks from the purchasing department at a "major retailer" would have awarded someone a PO with Jerry Springer on the background.......

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Interested in invoice factoring? Read the invoice factoring blog to learn more about business loan financing in west virginia.

Better days afoot?

June has proven to be quite a busy month. This month has seen a nice increase in deal activity. However, for the most part, these deals started a month or two ago. This bodes well for us - and for the economy.

I have always though that invoice factoring is a bell weather for the economy and the credit markets. Why?

Well, generally, factoring activity increases when credit tightens at banks. This is because banks are accepting less business loan applications, or even closing lines, which forces companies to seek alternative products. Most factoring companies noticed this last year. Their business increased as the credit crunch started to hit the economy.

An increase in factoring activity can also be indicative of things getting better. I believe this is the case right now. As businesses activity starts increasing, they look for business financing. Since we are emerging from a recession, few have the colletral to qualify for business loans. So again, they look for alternatives, like invoice factoring.

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Interested in invoice factoring? Read the invoice factoring blog to learn more. Looking for business financing in Wyoming?

Does invoice factoring work for large companies?

For the most part, most companies that use invoice factoring are small to medium sized. By small to medium sized I mean that they have monthly revenues of less than $700,000 - roughtly 9 to 10 million dollars per year. There are exceptions of course, but for the most part, the industry services small companies.

Does this mean that larger companies cannot use invoice factoring? No, but there are a couple of reason why they usually don't use factoring:

1. They have assets and a track record. Since most companies grow by being succesfuly, it stands to reason, that larger companies have track records and assets. Because of this, they usually have acces to cheap forms of debt financing - basically - business loans.

2. They've had prior financing. Most larger companies have a financing solution in place. If they seek factoring, they do so to extend thier current financing. And therein lies the problem. Most business financing solutions secure their position by using the accounts receivable as collateral. This makes sense, since accounts receivable usually makes very good collateral. However, to offer financing, factoring companies need to have a first position on the invoices. In effect, in an invoice financing the factoring company is buying the invoice at a discount. Because of that, they need to hold a first position lien on the invoices. It's unusual for the legacy financing company to give up (also known as subordinating) their positionm thus the effort to factor invoices fails.

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

Are Chrysler Receivables Factorable?

I got an interesting call not so long ago. A company called to ask me if I could factor some invoices they had outstanding with Chrysler, the now bankrupt company. I think they were suprised when I answered that maybe I could.

Maybe? But isn't Chrysler bankrupt? Exactly, and in some cases, that makes their invoices attractive to some factoring companies. There is a catch though - only post poetition invoices are factorable. That means that a factoring company will only consider giving you an advance on invoices for sales after the bankruptcy filing.

All this can be tricky, so when dealing with bankruptcy situations, be sure to consult an attorney. And note, this post has nothing to do with DIP Financing / Debtor in Possession Financing. That is the subject for a different post.

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Interested in invoice factoring? Read the invoice factoring blog to learn more or read the information here.

Wacky Ideas that Make People Millions

I found this article on Yahoo Finance about Wacky ideas that made people millions. Here is the funny thing - although none of the listed ones are clients of mine - I have had people whose ads have been on the television call me asking for either factoring or purchase order financing. One of my best stories is from a company that had a very interesting product that had been featured in the local news. As luck would have it, I had seen the newscast, so I was able to connect with the prospect.

Now, why were this companies looking for invoice factoring? Simple, many institutions are not keen on offering business financing to a company that has an innovative idea. Too risky for them. Yes one more advantage of my favorite form of financing :-)

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We offer factoring in Alaska. Please keep us in mind if you are looking for factoring financing in Alaska.

A Liquidity Trap

According to Wikipedia, a liquidity trap is

"The term liquidity trap is used in macroeconomics to refer to a situation where a country's nominal interest rate has been lowered nearly to or equal to zero to avoid a recession, but the liquidity in the market created by these low interest rates do not stimulate the economy to full employment. In this situation, any further increase in the money supply will not stimulate the economy any further. This is because any further injection of liquidity will no longer lower the nominal interest rate, as the nominal interest rate cannot drop below zero"

Many times, this results in banks that have lots of money, but who don't trust the collateral of their customers to make a business loan. In effect, there is plenty of money that could be offered for business financing, but is not.

I have seen a little bit of this in the invoice factoring industry. Although the interest in factoring financing has increased, the quality of creditors has decreased, so less clients are able to secure factoring.

Some people believe that growth will start in Q3. Even if it does, commercial credit quality will lag the recovery, probably by a quarter or two. This means that even if things turn around this year, you will not start seeing improvements in commercial lending for at least 6 months. At least, that is what I think.

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

Offering 30 to 60 Days Payment Terms on Invoices

Not too long ago, offering NET 30 days to pay an invoice was very common, much to the chagrin of certain companies. Now, 45 Days or even 60 days is the new 30. This opens two questions:

1. How to determine whether you should offer terms or not

2. How to bridge the cash flow gap that is generated by waiting.


The answer to question #2 is simple. If you have a line of credit or business loan you can use it to bridge the gap. But if you don't have access to conventional business financing, the alternative is to use invoice factoring. You can learn about it at the factoring resource center.


Answering question #1 is tougher. There are some things you can do to reduce the risk of non payment. Note that you will never eliminate the risk, you can just reduce it:


1. Get a commercial credit report. I am always surprised when i find out that few companies know about commercial credit reports. They are offered by Dun & Bradstreet and by Experian (their site is smart business reports) and are very easy to get - by anyone. These reports contain payment history for commercial clients and help you make an educated decision about offering terms. I consider this the best alternative since these reports can contain information reported by 3rd parties (e.g. vendors!) on how good a payer the prospect is. These reports are not infallible but are a great tool nevertheless.

2. Get credit references. If you cannot get a credit report you should have clients fill out a credit application. In it, they can list banking information and trade references.


3. Consider credit insurance. Most small businesses don't know that you can insurance against non payments. Although the intricacies of credit insurance exceed the scope of this article, you should consider speaking to a good credit insurance broker to determine whether it can help your business.


By the way, some factoring companies (but not all) insure the receivables they factor. At times, that may offer you some protection if you are factoring receivables and they are not paid due to client insolvency. If you chose to factor your invoices, you should discuss this with your factoring company.

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

On Cars and Selling

As I mentioned in a prior post, I am looking to buy a new car. I have been three weeks at it and have made very little progress. I really thought buying a car in a downmarket would be easier. Well, trying to buy an AUDI has been short very difficult. Their sales people have tried some tactics that , well, didn't pass the "straight face" test.

I had my heart set on that car but I have decided to expand my options and look at other brands. It's interesting to see how these salespeople turned a sure sale away. Both dealerships made the same mistake. There are is a very important lesson here.

Does your sales proposition sound honest? Does is pass the straight face test? Note that I am not asking if it is honest (it should be!!), but does it sound it? Customers are very intelligent and for the most part sophisticated. They expect their sales proposals to be clear and free of any gimmicks - real or imagined.

The auto industry is going through a very bad time - we all know it. Perhaps it's time to change sales taxtics?

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

Thawing in the Credit Sector?

An interesting article from the WSJ. The good news, apparently, fewer banks are not tightening their lending standards any more. This is great news as it makes business financing more accessible and ultimately enables more companies to get a business loan. Here is another article at the Wall Street Journal that shows that business credit is beginning to thaw.

Needless to say, this is all very good news and may point towards a stabilization of the market. Given how things have been going, a stable market is a very good start. Hopefully things will start picking up later this year and into 2010.

This is also good news for companies in the factoring financing industry. Although many factoring companies are self financed (or hedge fund financed), a number of them have bank loans and use business credit themselves. This will ease their ability to get funds, that then get reinvested in factoring.

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

Factoring for Canadian Companies

Factoring financing has slowly but surely been gaining traction in Canada. Although it's growth has been very focused on some industries, word has started to spread out to other industries. For example, freight factoring is becoming very common among truckers. Likewise, invoice factoring is becoming more common among staffing agencies and other service oriented companies.

Until very recently, there was a major difference in the financing rates that one could obtain in Canada versus those that were available in the USA. Although I cannot speak for the industry, I suspect this was related to the higher costs of funds and higher operating expenses incurred in doing business in Canada. This is changing, and in general, factoring in canada is becoming a cheaper option. Note that the rates will probably never be the same.

One advantage of factoring is that it's a flexible form of business financing that is easier to get than conventional loans or lines of credit.

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

DIP Financing Using Factoring

Invoice factoring can be a very versatile way to finance your company. It can also be used by companies that are undergoing a Chapter 11 bankruptcy reorganization. The factoring process under chapter 11 is a little bit different than conventional factoring and requires that you get legal counsel.

You will need the bankruptcy judge to agree to the financing and to issue a special lien that will enable the factoring company to operate. Aside from that, the factoring side of things operates fairly normally. Although you will only be able to factor post-petition invoices.

Is using factoring as DIP financing advantageous over using a business loan? Well, let me put it this way. If you have a company that is about to reorganize under chapter 11 and can secure a business loan in the current credit environment - good for you :-). Most companies will find that business loans are rather scarce in this environment. And that is where a factoring company can fill the gap.

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