Factoring
many factoring clients are rich on paper, with millions in
so you and your money are in and out
in a couple of months.
accounts receivable, or working capital. what they
Attractive returns. Bieler sees a
5 percent return on his investment each
lack is operating capital, and that’s why many companies month. So, if a client borrows $100,000,
he collects $5,000 for his company and
find themselves working with factoRs rather than banks.
his investors. If the loan continues for
two months, he earns another $5,000.
Do the math. That’s an annualized
established credit history. Others have money, because there are no carrying
return of 60 percent.
used our services to simplify planning, charges. But when the factors themselves
Repeat business. Because many
like our clients at Elan Inc.” need additional funds, they occasionally
clients have such a positive experience
Simply put: Companies need will turn to banks.
with factoring, they continue to use
operating capital. A steady stream of it. More often, however, these nontradi-
a factor’s services and remain clients
Operating capital pays employees, rents, tional lenders look for investor capital.
for years. A built-in client base means
and leases, as well as shipping bills and The factors then use the investor’s
more opportunities for profit.
other routine expenses associated with funds to purchase a client’s invoices,
No due diligence. Although the
any business. Many factoring clients are for example. And the investor collects
factor performs due diligence on new
rich on paper, with millions in accounts interest on the money “loaned” to the
clients, it will waive these fees for
receivable, or working capital. What they factor based on a prearranged agreement.
long-time clients. This means the
lack is operating capital, and that’s why Although many individual investors
private investor won’t have to pull
many companies find themselves working may have heard of factoring as a way
credit reports on debtor accounts or
with factors rather than banks. to make money, they frequently shy
clients. No due diligence fees means
Banks have a template for the model away from the process because it’s
a higher return on investment.
client. If a company doesn’t fit that too unfamiliar. Or maybe they think
Today’s economy. As traditional
template, it doesn’t receive a loan. So a it’s too complicated, too risky, or
credit sources continue to tighten
promising startup company, for example, too unregulated.
their lending requirements, more
may turn to factoring for a much-needed But with global markets buffeted
companies will turn to factors for
financial boost. Of course, the factoring by macroeconomic trends, now’s the
their capital needs. It’s an expanding
company does its homework before perfect time for investors to embrace
market with ever-increasing demand.
proceeding, but it can fund a less- the microeconomic position that
Less red tape. Factors are not
established company more frequently
factoring offers. You’re not required
governed by state regulators, a fact
than a bank or lending institution can.
to consider the weakening dollar, gold
that provides them more flexibility
Still other companies may put
at $1,000 an ounce, or the unstable
and the ability to move quickly.
factoring dollars to work for research
situation in most of the oil-rich regions
Factors recognize that after investors
and development or marketing, bringing
of the world. You can skip the whipsaw
see the benefits of this form of investing,
new products through the pipeline to
activity of global stock exchanges,
they’ll remain reliable sources of
the end user. This sometimes involves
sleep through the wheat crisis in the
investment capital. Bottom line: it’s
the purchase of specialized equipment
Ukraine, and not give a thought
a win-win-win for everyone involved.
and, again, banks take a cautious view
to inflation nibbling away at your
of capital expenditures. Factors, on
CD holdings. Tread carefully
the other hand, recognize the potential
Instead, you can focus your narrowed But remember Ken Walsleben’s
for growth and a secure return within
field of vision on people such as Brown, admonition. There are endless ways
a short time period.
who sells medical and testing supplies to slip up if you don’t know what
There is no one way business owners
to government agencies — and, as a you’re doing. So, begin by working
such as Gerry Mydlowski or J. Theodore
result, faces inconsistent, unsteady cash with a professional factor — one
Brown put factoring investments to
flow. Or Mydlowski, whose company, with a proven record of integrity
work. But one fact remains: Neither
develops product streams. This is and success, as well as an established
of these gentlemen is looking for a
microeconomics at its most micro. client base of satisfied customers.
life preserver.
One on one; the factor and the client. By working with a professional factor,
In addition to protection from you’ll avoid the pitfalls, you’ll invest
Factoring as an investment the global economy’s ups and securely, and you’ll see the risk versus
opportunity down, there are several other reward equation finally tip in your favor.
To begin the process of helping advantages for the individual When cash is a factor, a factor delivers
clients grow, expand, or traverse cash investor who chooses to take cash. And whether you’re a business
flow issues, factors need money to part in the factoring industry. owner or an investor, you can cash in.
invest. Much of their investment capital Speed. Factoring offers quick Paul Lalley can be reached at
comes from within. And it’s cheap turnaround — usually 30 or 60 days — editor.wordsinc@gmail.com
28 I July 08 I Growing Wealth I growingwealthmag.com
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