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Factoring for Success ... The Importance of Backing a Winning Business Plan

Date: Jun 17, 2014 @ 07:00 AM
Filed Under: Factoring

Putting our knowledge to work for our clients places them in a position to succeed. Often companies selling into retail channels are not focused on details such as cash collection and customer credit underwriting because they are paying attention to their individual strengths, whether it’s designing, marketing, selling or staying on top of the latest consumer trends. It should be of little surprise that behind every powerhouse clothes designer, furniture manufacturer or wholesaler of footwear or housewares today is an experienced lender who helped them execute a strong financial strategy while remaining focused on building their business.

ABL Advisor:  Have you seen any new sectors emerge as factoring clients in the last five years? Are there sectors that you see remain untapped that, in your estimation, could benefit from, or lend themselves to, meeting their financing needs through factoring?

Lucas:  There are pockets of vendors selling in retail channels of distribution that I personally believe are untapped, among them housewares, furniture and consumer electronics. These growing consumer products companies are generally in need of additional capital to support their development. On the surface, this does not always make them attractive clients, but a lender who has a deep knowledge base in a particular industry can structure its financing support in a variety of ways.

One of the key reasons we’re able to support smaller, growing consumer products companies is that we can blend financing solutions to match our clients’ needs. We often combine our factoring and lending products to help our clients get started and continue to invest in their business while they wait to be paid by their retail partners.

For instance, we work with plenty of goods makers with seasonal sales, and these vendors need to build their inventory well in advance of the annual spike in orders from retailers. We may provide advances beyond their collateral or extend an additional loan where many other lenders won’t, and that’s because we understand their business and the risks involved. We may even extend financing tied to their intellectual property, an attractive alternative we’ve offered for decades.

ABL Advisor:  What should factors be concerned with these days given the current economic climate?

Lucas:  It remains a very challenging environment for retail. While unemployment has declined recently, there are still a large number of people who have removed themselves entirely from the workforce because they’ve found it too hard to find a job. In addition, the recently revised first quarter GDP numbers showed a decline for the first time since 2011, and consumer confidence, while improving, still hasn’t returned to pre-recession levels. Taken together, I believe retail sector growth will be challenged this year.

Given this backdrop, I think factors need to focus on how best to serve their clients. And when I say service the client, I mean more than just providing the financing they need to grow and operate their business.

For the many years that I’ve been in the business, I’m still surprised by how many business owners don’t always look at the full picture when picking a lender. There is always a tendency to shop by price, which has only accelerated in recent years as lenders compete to put a surplus of liquidity to work. And while pricing may still be tighter in the multibillion-dollar corporate marketplace, the fact remains that middle-market companies have plenty of financing alternatives.

The value of any business financing solution extends to the support the factor on the other side of the desk is willing and able to provide. A factor needs to be able to help manage their clients’ businesses as efficiently as possible, anticipate problems before they become an issue and help build a profitable and successful business.

ABL Advisor:  You mentioned retail would be challenged this year. Are there other sectors that are poised for growth?

Lucas:  One area that has seen pent-up demand, due in part to the terrible winter this year, has been the furniture sector. Many of the companies that we do business with are having a great spring season and are growing at a multiple of the overall economy. The recent High Point Furniture Market, one of the largest furniture industry trade shows in the world, was one of the most successful ever. I believe there is more optimism in this sector than there has been in a very long time.

ABL Advisor:  Which areas within the furniture sector do you see growing over the coming year?

Lucas:  For the first time in a long time we’ve started to see some innovation in how furniture is grouped, as well as in the product lines. There have been a lot of color schemes coming back, and we are seeing the emergence of electronics and technology built into a lot of groupings and furniture. Furniture is being tied into some of the hot and newer electronics, whether it’s the televisions or smartphones or the flexible and moveable stereo equipment that you can get today and run off of an iPad. All of this innovation is under the umbrella that the price/value equation is still king. The consumer is still looking for value.

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