The Economy is Growing: How Do You Keep Up?

 In Accounts Receivable Factoring

Commercial bankers are faced with an ever-changing regulatory environment, increased competition, rising interest rates and shrinking margins.  These issues affect also their customers, with more reporting being requested, more banks asking for their business, and higher operating costs.

Our overall economy is growing again and the leading economic indicators are now showing positive signs.  

  • GDP is going up
  • The Unemployment Rate is below 4% nationally (which is almost three percent below the Federal Reserve’s estimate)
  • Inflation is predicted to move no more than a tenth-of-a-percent per year into the early 2020s, hovering at around 2%
  • The strength of the US dollar has been keeping down oil prices for the most part, and for the first time in a long time, if ever, the US is poised to become the largest exporter of crude oil

Things are looking up nationally and money is on the move!  

What this all means for the average commercial-banking customer is that he or she will have to increase investment in his or her business to grow it and meet new competition – it comes down to capital and/or cash flow.

Capital comes at a high cost, however.  Venture capitalists will want a stake in the company…possibly a controlling interest, that can change the entire makeup and direction of a company. Angel investors ask for heavy rates of return on their shares, as would any investor of a business in which they are not actively involved. That leaves the customer looking for other means to increase or enhance their access to greater cash flow as their other option for staying alive and growing.

So, what does a business do when the bank has to say no more, or at least not right now?  Say that business is outgrowing or outpacing what the bank can reasonably accommodate with evergreen line of credit increases and new short-term loan debt. No banker likes to have credits downgraded due to broken covenants, possible late payments, or heaven-forbid, going to special assets. No banker likes having “watch list” credits in their portfolio to then see how that situation limits their customer.

For customers that fit into these scenarios, cash flow has become tight which limits their capacity to efficiently manage their businesses. This is where a factor comes in to play and can offer some genuine value to the ultimate customer the banker is endeavoring to serve and also to the bank he or she is trying to protect. Factors don’t mess with real estate lending or equipment lending. Factors don’t take deposits or offer treasury-management services. Factors simply buy the Accounts Receivables and provide immediate cash flow for the customer.

The factoring customer gets immediate access to the cash represented by their Accounts Receivables, as opposed to having to wait 30, 45, 60, or more days to receive their money.  A factor charges a fee for the amount of time the invoice or invoices is/are outstanding. This means the customer can pay the bank loans, their people, their suppliers, and the associated taxing authorities on time. By doing this, they will improve their credit record with all concerned, and putting more money to work for their business, its growth, and the owners themselves.

AR Funding has been providing this factoring service for nearly a quarter century.  We too can partner with other specialty lenders; ones that offer purchase-order lending, equipment finance/leasing, and inventory lending, but our main and only true focus is factoring.  Credit guidance and collections too are part of our bevy of services, as is the flexibility to grow our exposure with your customer as their needs evolve.

As a commercial banker that is serving his/her customers and the bank he/she represents, we ask if you run into a scenario that sounds like what was just outlined, that you give us a call.  We have delivered solutions that have kept businesses afloat and not compromised the relationship had with their bank…actually it has enhanced it in many cases.

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