Monday, September 04, 2006

Factoring – A $1 Trillion Industry

One of the most common concerns I hear about using factoring (or accounts receivable funding) as a way to accelerate cash flow is that “my customers will think I’m having problems”. Well, if that’s the case, why would worldwide factoring volumes have exceeded $1 trillion in 2005? Statistics from Factors Chain International (FCI) indicate that total world volume for factoring increased in 2005 by more than 18 percent to almost $1.2 trillion.

Companies using factoring should not be concerned about negative perceptions by their customers. Factoring is a widely accepted mechanism for accelerating cash flow – businesses who have sold their products to companies as large as Walmart, General Electric and Albertson’s have factored those accounts receivable for years. That hasn’t stopped Walmart, General Electric and Albertson’s from conducting businesses with these vendors.

It’s not only small companies who utilize factoring. One of my contacts at one of the largest factors in the United States tells me that their portfolio includes a number of companies with revenues over $100 million who use factoring as a way to accelerate cash flow. For companies whose factoring volumes achieve certain levels, the cost of factoring is comparable to a bank borrowing facility. Also, those companies benefit from the credit and collection services offered by the factor.

The top three countries for factoring volume in 2005 were the United Kingdom, Italy and the United States. The countries where factoring has just been introduced include Peru, Egypt, the United Arab Emirates and Vietnam bringing the total of countries using factoring to over 60.

If your company needs to accelerate its cash flow in order to pay employees and vendors in a timely manner, give me a call and let’s talk about factoring.

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