How to Factor Your Freight

Waiting to get paid for work you have already done is a pain, but waiting for money when you have bills to pay is a huge problem. Trucking companies in particular often face cash flow problems when invoices from loads go unpaid for long periods. The work is done, but the cash is often tied up in accounts receivable. For a large trucking company with consistent cash flow, this might not be a problem—but for small and medium sized companies, sometimes waiting to be paid is not an option.

Freight factoring is one alternative financing option for trucking companies that get rejected for a bank loan. Approval for factoring is based on the credit worthiness of the freight customers, not the company’s credit, and therefore is much more likely than with a bank. Factoring is also a flexible option that allows for same-day cash. Here are the steps to take when deciding to factor freight:

Do research: Only choose factors with knowledge of the industry. Not everybody has someone on the staff who has worked with the industry before, so be picky.

Don’t hurry: Plan in advance so you don’t feel obligated to factor invoices urgently. Doing so could result in getting caught in a contract that you don’t want, or making costly mistakes. Take your time and find the best fit for your individual needs. Some companies offer back-office billing services or one-time invoice factoring agreements. Figure out what is best for you.

Start the process: Contact the company and you will get placed with an account manager. They can help you navigate the process and start getting cash right away for your receivables.

For more information on freight factoring, see here.

How is the Sequester Impacting Staffing Services?

The first effects of sequestration are starting to be felt, and staffing agencies are feeling the ripples. Some in the recruiting industry are starting to see signs of agitation in the workforce market as companies begin to change their hiring strategies. According to the Washington Post, the current trend seems to be companies turning to staffing experts and wanting a “super multitasker” that can do the jobs of many. Many hiring managers also want to hire as soon as possible, because as the sequester drags on it could decrease the budget even more.

As more clients turn to staffing agencies, the agencies themselves may be in need of increased cash flow so they can accept more business. Factoring companies that specialize in the staffing industry should take heed, as they might see an increase in demand for staffing and payroll financing. Turmoil often leads to opportunity, and it’s those who take advantage of opportunity that come out on top.

Navigating Client Relationships

In our last post, we talked about some ways to deal with problematic payers. In this one, we will be discussing how factors can keep their clients happy before it comes to that. The accounts receivable team at a factoring company is responsible for almost all the interaction with customers, including resolving issues and collecting payments from customers. They must strike a delicate balance between keeping customers happy and collecting on debts, or risk 1) getting walked over or 2) losing clients because of bad experiences. In an article on The Press Enterprise, author Sarah Cullins offers a few tips on how to achieve this balance.

Contact Person: From the onset of the business relationship, make sure the client knows exactly who to contact should problems arise. Have the account manager give them a quick introductory call to make sure everything is in order, too- a personal touch can go a long way.

Thank Yous: Simple thank you cards or emails for prompt payments can also be a nice touch. Don’t hesitate to call your clients and tell them how much you appreciate their business, or give them some free social media press. Great relationships are good business.

Phone Etiquette: It is crucial to be friendly on the phone, even when frustrated. Cooler heads always prevail so make sure your account managers keep this in mind. When it is necessary to collect past due payments or the like, the key is to be understanding and proactive rather than accusatory.

These tips can help a factoring company strike a balance between sales-y and firm, and keep great client relationships that could lead to coveted referrals.

Combatting Non-Payment

In a business like factoring where everything depends on invoices being paid, non- or slow-paying clients can have a big negative effect on operations. In an article on Inc.com, Margaret Heffernan, CEO of InfoMation, offers a few tips on how to deal with customers  who won’t pay.

Schedule Payments: One way to make payment easier is to break the project up into small segments and have the customer pay along the way. Problems that arise early are easier to fix than those that arise later, and customers will feel more in control of their incurred costs.

Upfront Payment: If you are committing resources, then so should your customer. Don’t be afraid to ask for payment up front, and be honest about your company’s needs. Heffernan suggests putting money into an escrow account, but says it depends on the business and what they think would best suit their needs.

Discount for Upfront Payment: This option has the advantage of giving customers a reason to pay upfront where otherwise they may not. This may entice your customers to pay first, which could eliminate trouble down the road.

Conduct Research: While you can run credit checks, Heffernan suggests doing some primary research and asking about the client in and around their networks. A previous connection is bound to have an opinion one way or another about the potential client.

These are just a few ways to address payment problems before they happen, which of course is the best way to address any problem. The policies you put in place beforehand can save you headaches down the road.

Global Economy Fuels More Optimism than U.S. Economy

It’s good to hope for the best, as long as you don’t forget to expect the worst. According to the ABF Journal, the results of the Business Council Survey of CEOs indicate that top executives are more optimistic about the future of the global economy than that of the U.S economy. The vast majority of them believe that the global economy will grow at the same pace as 2012, while 60% expect that growth will quicken. Most expect conditions to improve the most in China, at 57% of respondents compared to 30% on the last survey.

The U.S. economy results showed that confidence is down because of factors such as the fiscal cliff deal, sequestration, and the long-term deficit issue. The article states that “only 14.5% of those surveyed believe that the fiscal cliff deal did anything to solve long-term problems. Eighty% of those surveyed do not believe that the agreement was a meaningful step to resolving the deficit issue, and 84% believe it relied too much on taxes and too little on spending reform.”

While it is good that CEOs are optimistic about global prospects, improving confidence and optimism at home is extremely important for moving the economy forward.

Factoring Increasing Overseas

The process of invoice factoring is becoming more and more popular around the globe as more people become aware of the potential benefits. According to an International Factoring Association article, demand for factoring is sky high in the country of Kazakhstan, the largest economy in Central Asia. It grew by nearly 200% in 2012 with transaction volumes estimated at $30 million USD.

Factoring in Kazakhstan

Factoring is relatively new to the Kazakhstan financial market, as it entered after the economic crisis there in 2009. Since then, the country has had one of the fastest growing economies in the world, and the factoring industry is growing at a rapid rate. Experts say that factoring is popular because commodity buyers and sellers and small-to-medium businesses can receive immediate payments from shipped goods, when normally they would have to wait. Because factoring is still in its infancy there, a main niche has not yet emerged. Six main factoring companies exist at the moment, and banks are starting to show more interest in the process.

Implications

Factoring is increasing throughout the world as more countries catch on. Factoring is now a trillion dollar industry and appears almost everywhere, and transactions have increased by the following amounts on the main continents since 2009:

Americas: 21%

Africa: 5%

Asia: 57%

Australia: 5%

Europe: 11%

It is clear that factoring is increasing on a global level, and that more markets are opening up worldwide. Now is a good time to be in the international factoring business, as there are untapped markets all over the world.

The Effects of Sequestration

With just days until March 1st, sequestration is on the forefront of most working people’s minds. Due to the failure of the government to come to a workable agreement on spending cuts, automatic across-the-board cuts are scheduled to come into effect two days from now. Many government programs and jobs will be impacted, as well as the businesses that work directly and indirectly with them. While exemptions from the cuts do exist, sequestration will have far reaching implications for industries like healthcare as well as business in general.

Sequestration and Healthcare

The healthcare industry has a lot to potentially lose from the $85 billion spending reduction due on March 1st. While Medicare cuts have been restricted to no more than 2% of the budget (unlike most programs at 4% or more), healthcare experts say that the cuts will cost the industry over 200,000 jobs. Government officials say that coverage for those under Medicare will not change, but providers like hospitals are facing a potential 27.4% reduction in Medicare reimbursement. This puts them in a tough financial position– hence the job losses. The largest share of provider cuts goes to hospital inpatient care, at 32%, while group plans, outpatient care, home health agencies and skilled nursing facilities make up the brunt of the rest.

Certain portions of Medicare are exempt from cuts, such as the Part D low income subsidies, catastrophic subsidies, and Qualified Individual premiums. Medicaid and Social Security are exempt completely.

Sequestration and Business

While healthcare looks to be impacted greatly, business in general will be hurting even more so. George Mason University economist Dr. Stephen Fuller estimates that in 2013 alone, sequestration will put 2.14 million jobs at risk. This includes over 950,000 small business jobs from government supplier companies as well as mom-and-pop stores that deal indirectly with government contracts. Companies with 500 employees or less are facing up to 45% of job losses in the coming year. He also predicts a decrease in personal earnings of $109.4 billion as well as a GDP reduction of $215 billion. In an already struggling economy, this bodes ill for the coming months and years.

Specific Effects

Here are some examples of how sequestration will affect specific industries:

Defense: The active military remains untouched, however, civilian Defense Department pay is expected to decrease by around 20%. 46,000 temporary and term workers will be laid off, and furloughs will affect the rest. Defense Secretary Leon Panetta has said that national security could be harmed as a result.

Education: Special Education grants and Head Start funding will be reduced, as well as federal child care assistance. Thousands of teachers, aides, and speech therapists will be affected, and low income children are expected to suffer the most damage. For higher education, federal financial aid programs such as work-study will be cut by about 8.2%.

Air Travel: Federal Aviation Administration employees would be furloughed by 11 days, hampering air travel around the country as less air traffic controllers and technicians will be on duty. Security will also be affected, and wait times could increase dramatically.

Housing: Low-income families could potentially lose 125,000 housing choice vouchers, and about 100,000 formerly homeless people will lose their current housing and go to the streets once again. Foreclosure prevention advice will also decrease as HUD counseling grants will be reduced by 75,000 families.

Conclusion

Without some sort of bipartisan miracle in the next couple of days, sequestration will soon become a reality. The meat cleaver approach seems like an inefficient way to reduce spending, but hopefully it will serve as a wakeup call for the government to put aside differences in order to do what’s best for the country. Businesses should do what they always do in tough times- prepare for the worst while hoping for the best. After all, one thing that can never be “cut” is the indomitable American spirit of enterprise.

UCC Article 9 Amendments: What Factors Need to Know

According to a Commercial Factor article, a bevvy of amendments to the Secured Transactions portion of the UCC code will become effective on July 1st, 2013, and will directly affect the factoring business.  While the changes are not drastic and are intended mostly for clarification, factors should be aware of the coming changes and how they will have to alter their operations to conform to the standards.

Debtor Name on Financing Statement: The rule as it is right now is that an “individual name” must be used on a Financing Statement, with no other guidelines. The 2013 amendment attempts to avoid confusion and improper filing by requiring that the name be as it appears on an unexpired driver’s license issued in the state the statement is in, or if they don’t have a driver’s license then it should the last name and first surname.

Perfection Rules: The existing law says that if there is a change of state for a debtor, there is a four month grace period to file a new Financing Statement in the new state. However, it does not apply to property bought between the move and the new filing. The amendment will change this exception.

Financing Statement Forms: The Financing Statement form has been modified in a few ways, including a removal for the field for social security numbers. Factors must be aware that some states might not accept the new forms without the SSN.

These are just a few changes to the rules, but will probably be the most pertinent to factors. It’s important to be up on new laws, no matter how insignificant, to avoid confusion and misfiling.

Options for Funding Working Capital Needs

Working capital is defined as current liabilities subtracted from current assets- aka, the current assets remaining after debts are taken into account. According to an Entrepreneur article called How to Determine Your Working Capital Needs, though, calculating what it means to your business is a little more complicated. They recommend using the operating cycle, or the time is takes for a sale to be paid. When companies have credit terms, this can be anywhere from 30-90 days and sometimes even longer when customers do not pay on time.

Financing the company in the interim can be a challenge, and most small businesses don’t have enough excess funds to do so. There are several options for getting short-term working capital, including but not limited to the following:

Factoring

In this form of financing, a factoring company buys their client’s accounts receivable and advances 80-90% of the value up front. When the remainder is paid, they give back the rest less an agreed upon fee. Advantages of factoring are flexibility, speed of delivery, and reduced overhead by outsourcing the collections process. The main disadvantage is that it is relatively expensive compared to bank loans.

Line of credit

If the business is well financed and has good collateral, they may qualify for a line of credit that allows them to borrow funds when needed. The money must be repaid to the bank once the accounts receivable are paid in full. Advantages to having a line of credit are financing when you need it and that it is relatively cheap. A major disadvantage is that they have strict policies and not many small businesses qualify.

Short-term bank loan

For businesses that don’t quite qualify for a line of credit, it might be possible to get a small bank loan instead. The terms are usually less than a year, and can be provided for a large order or a seasonal inventory buildup. The advantage to a short-term loan is the low cost of financing, while the disadvantage is a lengthy and difficult approval process.

Size of Staff Now Matters to 2014 Obamacare

While the Affordable Care Act doesn’t go into full effect until 2014, business owners should be aware that the size of their staff this year determines whether they are hit by penalties.

Most SBOs know by now that any company with over 50 full-time equivalent employees will be required to provide healthcare for their employees in 2014 or face fines. However, some aren’t aware that the government will be using staff data from 2013 to determine whether a company falls under the provision. According to the WSJ article Insurance Rule Will Go By Size Of 2013 Staff, this could change some SBO’s plans to change their staff next year. Rather than wait, they should make the changes this year while there is still time. A misunderstanding of the provision’s rules will have some companies blindsided with penalties in 2014.

Once business owners get wise to the rules, staffing in these companies may be rearranged and reorganized. Change often brings opportunity, and industries like temporary staffing will probably be the most affected.

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