Two industry developments have caused companies to navigate obstacles and detours placed in the path of freight bill financing.

The Approved Factoring Company List

Transportation financiers were shocked earlier this year when one of the largest intermediaries and account debtors in the transportation industry implemented an approved factors list. In a nutshell, C.H. Robinson Worldwide, Inc. told motor carrier vendors they were not eligible for business if they used the factoring services of a company that was not on the list.

This left some transportation factoring companies stranded on the side of the road, unable to compete for business. To make their predicament worse, it could take until next year before the list is reviewed and any additional companies added.

As transportation factors work through the ramifications of the “approved factors list” it also gives rise to another concern, “Could this could set a precedent for other segments of the industry?”

The Motor Carrier Protection Act of 2010

This pending legislation was introduced on June 14, 2010, as Senate Bill 3483. It’s stated purpose is to “to increase the effectiveness of Federal oversight of motor carriers” by imposing tougher registration requirements on freight forwarders and freight brokers.

Here are few items the bill is proposing:

• Annual registration and renewal fees
• Separate registration as a motor carrier, freight forwarder, or freight broker
• Increase financial security requirements to $100,000
• Deposit at least $10,000 with the surety in cash
• Employment of an officer with 3 years relevant experience or acceptable certified training

For more details on the act including the full text of the bill visit: http://www.govtrack.us/congress/bill.xpd?bill=s111-3483

Who is most likely to suffer from these tightened restrictions?

You guessed it… small business. It will be harder for the smaller freight brokers to both enter and stay in business. This also impacts small business funding specialists like factoring companies since “the little guy” is more likely to turn to accounts receivable factoring.

While intentions to increase efficiencies or provide oversight protection sound noble, they also create roadblocks to transacting business. Groups like the International Factoring Association and the American Factoring Association have been working hard to pave solutions for the factoring community. For more information on getting involved visit factoring.org or americanfactoring.com.

The average time to pay bills is up 5% to 55.8 days for companies with sales over $5 billion, as reported by the Wall Street Journal in Big Firms Are Quick to Collect, Slow to Pay.

On the flip side these same big firms are stepping up efforts to collect on invoices, shortening the number of days to receive payment from customers.

So who is getting stepped on?   You guessed it…the little guys.

The report goes on to reveal that small to mid-size businesses with less than $500 million in sales are feeling the squeeze from both sides. The time it took smaller companies to collect on payments went from 54.4 days last year to almost 59 days in 2009. That’s about an 8% increase in time to receive money while simultaneously the time to pay their vendors decreased about 6.5% to 40.1 days.

What is good cash flow management for the big guys is turning into a nightmare for small business.   Imagine having to wait 120 days for payments from a large customer that used to pay in 30 days, a policy implemented by Anheuser-Busch Co. earlier this year.

All across America it is taking small business longer to receive payment on accounts receivable while trying to meet demands for faster payment on invoices they owe.   To meet cash flow a business often turns to credit lines and bank loans, but these are more difficult than ever to access during the credit crunch.

The search for alternative solutions is creating an increased demand for accounts receivable financing.   Also known as factoring, a business can receive an upfront cash advance on outstanding invoices.   This influx of cash can be used to meet payroll, pay bills, or fund growth, even when banks turn a business down.

Entrepreneurs and businesses interested in making money with factoring can learn more with the Small Factor Series, a proven yet affordable how-to system by Jeff Callender.

Author:   Article Written by Tracy Z. Rewey

Source: Analysis performed by REL Consultancy for the Wall Street Journal as reported in Big Firms are Quick to Collect, Slow to Pay, August 31,2009.   To read the WSJ article visit: http://online.wsj.com/article/SB125167116756270697.html

Factoring Investor (FI) asked Jeff Callender, founder and president, to share some information on working with his company.

FI: You work with very small business clients that most factors usually turn away. How are you able to work with such small companies?
We intentionally operate with extremely low overhead. We work from a home office and keep our expenses to a minimum. Larger factors who work in big offices with a hefty payroll have a high break-even point to make a profit, and thus need clients with larger volumes to make factoring worthwhile. We don’t have those burdens and are small by choice. We prefer to give extremely personalized service to select clients, rather than take on as much business volume as possible. We have found this to be preferable both for us and the clients we accept.

FI: Do you accept clients from any specific geographic area?
While we are located near Seattle, we accept clients anywhere in the 50 states of the U.S.

FI: Do you accept referrals from consultants?
Yes, in fact about 60% of our clients come directly from consultant referrals. We have a Consultant Packet with all necessary information available from the Consultants link at DashPointFinancial.com. We pay generous commissions on a monthly basis for the life of an account. We also pay commissions “one deep” that is, if a client you referred, refers us to another company, and that company becomes a client, you receive ongoing commissions for this referral as well.

FI: What type of clients does your company target?
We fund only clients who begin factoring less than $10k in total volume to start and gradually grow them to $50-60k.

While anticipated growth is welcome, we don’t require it. Some factors accept very small clients with the expectation they’ll grow; if they don’t, such clients are often dropped. We don’t do that; for example, I’ve had one client who’s been factoring about $5-6k a month for around five years now, and I consider him a good client. I don’t make the “big bucks” with him, but his low-maintenance account has provided steady, dependable income for a long time. That works for me. However, a great many of our clients do grow over time.

Many of our clients are service businesses, especially in the cleaning sector – janitorial, carpet cleaners, window washers, etc. We’ve also had good success with small courier services, new temp staffing companies, security guard firms, even a couple day care centers who have some kids whose care is paid by the state, which is what they factor. Many of our clients are “Mom & Pop” operations the bigger factors usually avoid.

In general we look for clients with the following characteristics:

• Are honest small business owners in need of improved cash flow.
• Have an existing incorporated or limited liability business and business license (we can’t fund sole proprietors).
• Wish to factor fresh and ongoing invoices to creditworthy business or government customers (not private individuals).
• Factoring volume is less than $10k per month to begin.
• May be young or start up companies, or may have been in business for some time. The significant matter is the need for improved cash flow.
• Typically wait 2 weeks to 2 months (preferably 15 to 45 days) to receive payment — which is the primary reason for cash flow needs. We usually do not accept non-government customers who take more than 60 days to pay.
• Have no UCCs or liens outstanding, no significant tax arrearages, nor unsatisfied judgments.

FI: Are there any industries you do not factor?
We do not deal with construction or trucking receivables, nor medical receivables billed to insurance companies or private individuals. We do fund medical invoices billed to hospitals and creditworthy businesses. Invoices from clients to insurance companies or apartment management companies are usually avoided as well.

FI: What happens if a company becomes too large for you to continue factoring?
We have contacts with numerous factoring companies and will either 1) have another participate with us in funding the account (which is transparent to the client), or 2) refer them to a larger factor. Either way the client continues to receive excellent service. If a client referred by a consultant moves to a larger factor, we make sure the new factor continues to pay the consultant a commission and we move out of the picture. We make a point of protecting our consultants’ interests since our business relies on their referrals.

FI: How are you funded?
We are funded primarily with private financing. This means we are not constrained by requirements or restrictions that banks often impose, nor are we vulnerable to unexpected or sudden withdrawal of operating funds as are companies funded completely by banks.

FI: What is your experience in the factoring industry?
I began as an independent factoring consultant in 1994 and started buying small receivables that year. I have worked both as a small independent factor, and also as an Account Executive for a large factoring company managing part of a large corporate portfolio.

Previously I owned a sign shop franchise during which time I learned firsthand how factoring can provide needed cash flow for a small business. This provided experience from both sides of the factoring table enabling me to know what it’s like to run a business and need adequate cash flow.

FI: What sort of educational materials do you provide clients and consultants?
I have written several books and ebooks on factoring small receivables that teach others how to succeed in this business. Unlocking the Cash in Your Company is popular with business owners who want to understand accounts receivable funding and how it can benefit their business. How I Run My One-Person Factoring Business is a favorite among consultants and investors who are thinking about making money as small factors and are curious as to how to do it with few or no staff people. I also provide mentoring for people interested in becoming small factors, plus sell an online software data base product (FactorFox) used by many smaller factors to track their portfolios.

FI: How can someone interested in working with your company contact you?
Dash Point Financial has a strong online presence and helpful information at www.DashPointFinancial.com. You can reach me by email from the site or call 877-620-3699.

FI Summary: Helping businesses raise cash through factoring account receivables is one of many cash flow categories where consultants can earn commissions by referring transactions to funding sources.