An article in the Christian Science Monitor, “Indie workers: Is self-employment the new Norm?” says that although experts’ opinions vary, as many as 16 million “career independent workers” are striking out on their own. The SBA confirms it; it sees small business start-ups are on the rise while fewer small businesses are failing.

 
One of the speed bumps on the path to successful entrepreneurship is the reality of time-consuming back office work. Your passion may be website development, but you find too much of your time is spent chasing invoices and managing your cash flow. Those days of auto-deposit on the 15th and 30th have become a distant memory.

 
If you are one of the entrepreneurs being held back by your own back office, consider outsourcing some of your activities. For example, a factor will give you a cash flow boost and chase your invoices for you.

 
Although some of these workers may be waiting for full-time traditional employment, it seems that many of the self-employed are thriving and here to stay.

 
Are you one of the newly self-employed? What are your thoughts on this trend?

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Year-to-date, we have nearly doubled the number of new staffing clients and nearly tripled the new staffing facility size totals compared to the same time in 2011.

So why is staffing booming while hiring has slowed?  The Chicago Sun-Times recently explored this trend in an article, “Temp Work on Rise in Chicago Area” by Francine Knowledge.

According to the piece, temporary staffing is booming primarily because companies are using temps while they wait to see if the economy is growing or stagnating.  If there is a slow down they don’t have to lay off permanent staff, but they have staff on hand to get the work done now. 

Staffing – full-time or temporary — is a good indicator of the health of the economy, so a boom in this industry is a positive sign. 

For more information on this trend, http://www.suntimes.com/news/13065266-418/temp-work-on-the-rise-in-chicago-area.html.   
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Q. What are the most recent developments in International Trade Finance?

 
A. In the U.S., the conversation has shifted from massive companies that traditionally export to small to medium-sized businesses that are less experienced with exporting. The National Export Initiative, announced in the 2010 State of the Union address, is fueling the increased interest. The Initiative set the ambitious goal of doubling U.S. exports by the end of 2014 in order to grow the economy and create new jobs. Regardless of political leanings, this initiative has lit a fire under the official export credit agency of the U.S. government, the Export-Import Bank (Ex-Im), which is now producing more programs to help small business export goods.

 
For example, its Working Capital Guarantee program is aimed at exporters, but in my experience I’ve found it’s hard for them to qualify and take advantage of it.

 
Q. What types of companies do you come across that need export financing?

 
A. We’ve seen anything and everything in terms of the variety of products and services that are exported. They generally fall into two types: Mature, experienced companies that rely on international markets and what I call ‘accidental’ exporters. Accidental exporters are companies that are unlikely to grow into full exporting businesses because they are just looking for funding to fill an opportunistic international order. Most of these companies don’t have the capital or the knowledge to develop that export market. However, the resources of the SBA and Ex-Im, combined with factoring, can definitely help some of these ‘accidental’ exporters transition into more mature exporting companies.

 
‘Mature’ export companies tend to have more knowledge of working internationally, but there is often a way we can help them minimize their risk or speed up the collection of their AR.

 
One of our clients, for example, is a ten-year-old manufacturing company that distributes to Malaysia and Singapore. Nearly 50% of its debt is foreign. The management staff has global experience in manufacturing, distribution, finance, marketing and sales. They formed the relationships needed to generate orders abroad to grow their business. Along with providing cash flow, we’ve helped this company minimize its risk by tracking its goods and alerting them if there are any customs issues holding up delivery. This knowledge helps them keep their AR rotating smoothly.

 
Another client distributes seasonal apparel to more than 25 countries. Once a year, we provide them with a $2 million combined purchase order and factoring facility to enable them to ship goods internationally and domestically. Our European offices collect the majority of the debt, so collections are made in the same language their debtors speak.

 
Q. Did the Recession affect the market?

 
A. Yes and no. The financing process hasn’t changed and the types of inquiries we receive have been consistent. We still help companies that have an importer and exporter component taking control and ownership of goods. In that sense, it is business as usual.

 
However, a depressed local market caused some small and medium-sized businesses to look to international markets as an answer to their woes. That works well for companies with products that are in high demand abroad.  

 
The biggest change we experienced during the Recession was the increased difficulty in purchasing international credit insurance. The major credit insurance companies clamped down when the loss ratio was going through the roof. We are just now starting to see improvements in this with the obvious exceptions of certain risky markets like Greece, Portugal and Italy. The credit insurers have recovered much of their losses and they are more open to underwriting higher limits faster. There is more competition again between the credit insurance companies to deliver policies at an attractive rate.

 
Q. Has the market become more attractive to factoring companies?

 
A. It is easier for a company like ours to offer an export financing product because we have a global presence we can leverage. For domestic factors it is a bit of a risk and arguably one that they don’t need to take yet to find new business.  

 
I do see some factoring companies testing the waters on the back-end of the availability of credit insurance. Some companies are getting creative and providing more flexible solutions to help clients export. In general, I believe the industry wants to support these businesses but export factoring is still a niche product.

 
Q. What are the key markets for exporting?

 
A. At Bibby Financial Services we have debtors in over 120 markets but typically our U.S. clients are exporting to Canada, Europe, and South America; Brazil is also very popular right now. There is also interest in the Far East since it is growing and people want to capitalize on that growth. There are other emerging economies businesses are starting to consider now due to the availability of credit insurance. For example, it is possible to insure debt to Sub-Saharan Africa, which opens that region to businesses that previously might have avoided it due to concerns about the ability to collect. 

 
Q. What are the main obstacles a small to medium-sized company faces when they begin exporting and how do you overcome them?

 
A. Time and language barriers are usually the top concerns, but confusion about the rules and a lack of knowledge is also a big issue. We tap into our global network of offices so we have someone who speaks the language and is calling on the debt in the correct time zone. We also use our locations to manage payment internationally—so when a European business pays an invoice for a U.S. client, the payment goes into a European bank account and it is credited the next morning to their U.S. Bibby account. That way our client isn’t waiting on an international payment. We also talk our clients through their paperwork and help them make changes so they are assuming less risk. Typically, factors would help a client avoid risk problems by understanding their business and relying upon their experience. Companies should expect factors to ask these types of questions: How did they find their customers? What countries do you sell to? What are the terms of sales? How do you ship your products? Do you use a freight forwarder? What currencies do you invoice in? Do you have a local agent to liaise with your customer and generate sales? What paper work do you have to ensure your transaction will proceed through customs?

 
All of these questions avoid problems. We have about 800 clients with export debt and a broad knowledge of different markets so we can often steer the client clear of hidden pitfalls.

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For those of you new to the idea of exporting, don’t be intimidated. As you get started, look for global factoring companies that are well-versed in guiding you through the process. They can also help you smooth out any cash flow gaps and work with you to deal with language barriers and exchange rates.

As you assess your opportunities, think about whether your products are appealing to Central and South American businesses and consumers as well as those in Hong Kong, Thailand, Turkey and South Africa. They represent the areas of largest annualized growth – all double digits. South American markets Argentina, Brazil and Chili, for example, are averaging 30% growth compared to 2009.

Economists now see exporting as a key driver of the recovering economy. Why not take advantage of this emerging mega-trend in global business growth?

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Both companies have a partnership with Getloaded, a load board that connects truckers with freight that needs to be hauled. Truckers can take advantage of additional services, including international expertise, credit checks, back-office support, discounts, insurance and leasing.

To learn more, take a quick listen to FreightCheck’s Amanda Rudd and Bibby Transportation Finance’s Ivan Cook from a radio broadcast at the recent Great American Truck Show.

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We find our clients — in industries ranging from fashion to export to transportation — turn to  these organizations for help that would be difficult and cost prohibitive to secure on their own.  A sampling of the host of valuable memberships includes the California Fashion Assn., the American Trucking Assn., and the American Staffing Assn. (We take our own advice by being active members of the International Factors Assn. and the Commercial Finance Assn.)

These organizations’ reach and influence goes well beyond giving you regular networking opportunities.  Their offerings include:

•   Educational opportunities and ‘best practices’ seminars to round out your skills as a small business owner
•   Data and analysis that can help you make smart decisions about creating the optimum cash flow for your company
•   Aggregating news (often through Facebook or Twitter) so you’re always on top of industry trends and headlines
•   Legislative updates and lobbying so your single voice is represented as one of thousands to the people writing rules and regulations about your industry

They also supply invaluable industry specific information. The California Fashion Assn., for example, addresses global sourcing and export issues and supplies guidelines for labor law compliance – both issues that would be challenging to address as an individual company.

So the next time your bills come due, consider joining your industry’s national organization or renewing that subscription with confidence. Our clients and we agree you won’t regret it.

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1. Haul loads only for companies with sound credit histories. Knowing the current credit profile of the companies you do business with is the surest way to reduce your risk of not being paid or of being paid late. Don’t let your desire to pick up a load cloud warning signs that a customer is about to go out of business. Did they pay on time the last time you worked with them? Do you know other truckers who recently have had good experiences with them? Do you work with a finance company that has access to their credit worthiness?

2. Consider factoring or spot factoring. In a slow economy debtors tend to stretch out payments, tying up your working capital in old invoices. When business is good, having more access to quick cash can help you take on more jobs. In both situations, consider having a cash flow solution in place. A factoring company will provide you with quick cash for all of your receivables. A spot factor will work with you on invoices from as few as one slow-paying customer.  Consider both options carefully. The spot factor’s fee will probably be higher, but it may be a better choice if most of your customers pay quickly.

3. When looking for a funder, choose one that has free ancillary services that save you money. If you’re going to choose a factoring company, why not pick one that gives you discounts! Some factors are large enough to get discounts on products and services you already use. Look for factors that will provide fuel cards, discounts on gas or insurance, and even free credit checks.

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Upon seeing the article, we thought, what apps do Bibby Financial Services employees use that could give small business owners an edge? Here are a few the team recommends:

• Salesforce CRM Mobile – This app provides any busy sales team access to their contacts and prospects when they’re travelling. Before we purchased this app, our sales people on the go would often resort to counting on others to log in to Salesforce to save their leads for them.  Now they can log in wherever they are and keep records of their activities up to date.

• GoToMeeting – This is another service we use at Bibby Financial Service. As a global company that offers a specialist export finance product, we often need to connect with colleagues that live across borders. GoToMeeting helps us make those meetings productive. It is a remote meeting and desktop sharing software that enables you to meet with other computer users, customers, clients or colleagues via the Internet in real-time. And with their app for iPhone and iPad we can connect on the go.

• Dropbox – This app helps us pass along large files without causing our IT department grief. Instead of emailing large files or folders, this services enables users to save them using cloud computing so they can be accessed anywhere.

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The article confirms that the conventional wisdom that small businesses would lead us out of this Recession hasn’t proved to be as true as we’d like.  Banks continue to hold purse straps tight, despite government pressure, and many big businesses are putting the squeeze on smaller companies by paying their bills more slowly – as a matter of policy.

Once primarily used as alternative financing for the garment district in the United States, factoring has broadened its appeal across sectors. According to the Wall Street Journal’s How to Guide for Small Business Funding, “now billions of dollars in accounts receivable flow through factors each year, many of whom specialize in particular industries such as trucking, construction or health care. Some companies use it as a stop-gap measure to temporary meet cash-flow needs. Others prefer factoring to banks, which often require more paperwork, or other outside investors, who may want a piece of the business.”

One advantage that both Costco and the WSJ touch upon is the ability for a company to get help with collections – a time-consuming task that keeps key personnel away from selling their merchandise and growing their businesses. Costco also advises – as we do – that factors, experienced with overseas suppliers and purchasers, can also be a great help when navigating through the paperwork of international business.

To read more:   Costco Connection, June issue www.costcoconnection.com
Wall St. Journal’s How to Guides for Small Business: www.guides.wsj.com/small-business/…/how-to-use-factoring-for-cash-flow

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The automotive market is heading toward a growth spurt, giving factors enormous opportunity to help fuel the growth of this country’s single largest manufacturing employer.

Pent up demand, consumer confidence and a shift towards fuel-efficient vehicles will spearhead this automotive Renaissance.  Industry analyst Lindsay Chappell predicts, “The U.S. market is now fully capable of selling 15 million or more new autos a year. A year or two at 10 million sales suggests there are millions more of unrealized sales out there just waiting to happen.”

This behemoth of an industry has come a long way in a short time. The Recession caused it to come to a screeching halt in 2008 and 2009.  But now, Toyota, Volkswagen, Kia and Audi are all opening plants, or expanding existing plants, in the Southeastern U.S. along with several new plants in California. The Big Three American auto makers — General Motors, Ford and Chrysler — are also all showing signs of a promising turnaround:

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  • •    GM reported after tax profits of $4.7 billion in 2010, making it its best year since 2004;
  • •    Ford surpassed GM, with after tax net profit of $6.56 billion,
  • •    And, Chrysler, the smallest of the Big Three, announced that even though it saw a net loss in 2010, it expects to see net profits of $200-500 million in 2011.

They all are betting that consumers will trade in a sizeable portion of the 250 million cars on the road today for more fuel efficient, technologically savvy models.

All of these indicators show this is a promising market for factoring, but not one without risk issues. It’s important that we as financers support this industry that is vital to the health of our economy. Here’s how the factoring industry can effectively capitalize on this trend:

Help suppliers meet demand

With growth on the horizon, the suppliers to the automotive industry are ramping up production to keep up with the demand for new products and the increased interest in current models. According to Autotrends.org, the industry has begun to recover the hundreds of thousands of jobs lost over the past five years. The automotive industry now directly employs over 685k Americans – and is hiring again. It generates an additional 3 million jobs through the suppliers that support them.

Although suppliers are expected to benefit from this resurgence, they’re now experiencing the growing pains that come from a spike in demand without increased liquidity. According to the Automotive Supplier Barometer of the Original Equipment Suppliers Association (OESA), an increasing number of suppliers are seeing increased operational costs across the board:  Production labor premiums, material cost premiums, set-up and change over costs, expedited freight, and inventory carrying costs. More than 90% of suppliers say their predominate concern is an increase in material costs. It has already forced some companies into bankruptcy.

Step in while banks remain reluctant lenders

With the cost of materials on the rise, supplier pain is exacerbated by the difficulty maintaining and obtaining bank loans. According to Automotive News industry analyst James B. Treece, despite parts suppliers’ healthy stock prices, banks are holding back from supporting this important sector. This could be due to the losses banks took from this sector during the Recession.

Suppliers are fighting back with mixed results. They have lobbied to get access to the low-interest government loan offered to automakers. But even after they were able to influence Congress to redraft the U.S. Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Program to include suppliers, their ability to get the loans remains tentative at best. Even one of the industry’s largest suppliers, BorgWarner, was eventually denied a loan.

With government loans difficult to come by, factoring is an ideal cash flow solution for the automotive supplier market.

According to Marcus Ferrari, National Sales Director of Bibby Financial Services, “Currently, traditional bank lending is generally not available to automotive companies in the middle market so they must rely on asset based financing for working capital. But, as clients are pushing ABL lenders to generate more availability, ABL lenders are reaching out to factors that have international capabilities and purchase order finance companies to fill in the cash flow gaps.”

Bibby Financial Services had the opportunity to help an automotive manufacturing client that was forced into bankruptcy. Its sales fell due to the poor economic conditions in early 2009; they were in the unfortunate position of having Chrysler as their main customer at that time. Their bank called up their note on an otherwise performing loan before Chrysler declared bankruptcy, forcing the client into bankruptcy themselves. Bibby Financial Services received the client through DIP funding.

Understand industry tiers

It’s important to understand the automotive supply chain when entering this market.  There are three tiers of automotive manufacturing companies that will fuel this rebirth of the American auto industry. Each is defined by the end user of that company’s product.

Generally, Tier One suppliers provide full design, assembly and engineering support. They sell finished components, such as transmissions, seats and instrument panels, directly to car companies, known in the industry as Original Equipment Manufacturers (OEMs). Tier one is comprised mostly of large companies such as Delphi or Johnson Controls.

Tier Two companies mostly sell products to Tier One. An example of a typical Tier Two company would be one that supplies component parts, such as transmission gears, electronics, speedometers and seat covers, to the Tier One suppliers.

Tier Three suppliers generally provide smaller components and some tooling and dies to Tier Two companies. In practice, they sell to both Tier One and Tier Two.

“We consider all three tiers factorable,” says Robert Meyers, VP of Sales at Bibby Financial Service. “Tier Two is usually the most factorable tier with the lowest risk issues due to their size and position in the supply chain. Tier Three companies are factorable, but will have risk issues that need to be mitigated.

“We find that Tier Three companies typically will have the slowest paying customers because they sell to the second tier, which is waiting for cash from the first tier,” said Meyers. 

Tier Three companies that do tooling create special concerns for factors, according to Meyers. Tooling is usually billed in progress payments and it may take twelve months or longer to complete.

“There is always a chance the OEMs may change their product or not pay until it’s complete which creates liquidity problems for suppliers and risk issues for factors,” he warns.

Pursue credit insurance; beware contra accounts

Even with the Recession in the rear view mirror, pursuing credit insurance is a great way to mitigate risk in this sector and it is becoming easier to obtain again.

“Many Factors use credit insurance,” according to Scott Ettien, Senior Vice President of Trade Credit and Political Risks at Willis Financial Solutions. “It becomes a nice form of opening new credits and expanding existing lines, however, the availability of credit insurance will ebb and flow with the market sector and economic conditions. During the Recession, most credit insurers pulled away from automotive manufacturing companies but that is fading as individual financials and economic conditions improve. Because credit insurers monitor the market so carefully, they can supply an important third party expert opinion to bolster a factor’s own credit decisions which instills further disciplines during difficult times.”

Every tier may or may not also have contra accounts. For example, a Tier One company might supply materials to a Tier Two, which will then manufacture the product and sell it back to the same Tier One company.

“This can happen in any of the tiers,” according to Meyers, “but we tend to see it occur mostly in the top tiers where larger companies are involved.”

Review vendor agreements and purchase orders

With any tier of the automotive manufacturing industry, pay special attention to the vendor agreements and purchase orders. Some may have liquidated damages. The company may also have a performance guarantee that states if it doesn’t fulfill an entire order and the customer has to find an alternative supplier, they can charge the client for production costs as well as the costs associated with finding that additional supplier.

Facilitate flexible solutions

Finally, an important way to help companies in this sector is to bring together multiple lenders such as equipment, inventory and real estate financiers. You can then provide the maximum cash flow possible so these suppliers in every tier can help the US take its leadership position in the global automotive industry again.

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