We find our clients — in industries ranging from fashion to export to transportation — turn to  these organizations for help that would be difficult and cost prohibitive to secure on their own.  A sampling of the host of valuable memberships includes the California Fashion Assn., the American Trucking Assn., and the American Staffing Assn. (We take our own advice by being active members of the International Factors Assn. and the Commercial Finance Assn.)

These organizations’ reach and influence goes well beyond giving you regular networking opportunities.  Their offerings include:

•   Educational opportunities and ‘best practices’ seminars to round out your skills as a small business owner
•   Data and analysis that can help you make smart decisions about creating the optimum cash flow for your company
•   Aggregating news (often through Facebook or Twitter) so you’re always on top of industry trends and headlines
•   Legislative updates and lobbying so your single voice is represented as one of thousands to the people writing rules and regulations about your industry

They also supply invaluable industry specific information. The California Fashion Assn., for example, addresses global sourcing and export issues and supplies guidelines for labor law compliance – both issues that would be challenging to address as an individual company.

So the next time your bills come due, consider joining your industry’s national organization or renewing that subscription with confidence. Our clients and we agree you won’t regret it.

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Upon seeing the article, we thought, what apps do Bibby Financial Services employees use that could give small business owners an edge? Here are a few the team recommends:

• Salesforce CRM Mobile – This app provides any busy sales team access to their contacts and prospects when they’re travelling. Before we purchased this app, our sales people on the go would often resort to counting on others to log in to Salesforce to save their leads for them.  Now they can log in wherever they are and keep records of their activities up to date.

• GoToMeeting – This is another service we use at Bibby Financial Service. As a global company that offers a specialist export finance product, we often need to connect with colleagues that live across borders. GoToMeeting helps us make those meetings productive. It is a remote meeting and desktop sharing software that enables you to meet with other computer users, customers, clients or colleagues via the Internet in real-time. And with their app for iPhone and iPad we can connect on the go.

• Dropbox – This app helps us pass along large files without causing our IT department grief. Instead of emailing large files or folders, this services enables users to save them using cloud computing so they can be accessed anywhere.

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The automotive market is heading toward a growth spurt, giving factors enormous opportunity to help fuel the growth of this country’s single largest manufacturing employer.

Pent up demand, consumer confidence and a shift towards fuel-efficient vehicles will spearhead this automotive Renaissance.  Industry analyst Lindsay Chappell predicts, “The U.S. market is now fully capable of selling 15 million or more new autos a year. A year or two at 10 million sales suggests there are millions more of unrealized sales out there just waiting to happen.”

This behemoth of an industry has come a long way in a short time. The Recession caused it to come to a screeching halt in 2008 and 2009.  But now, Toyota, Volkswagen, Kia and Audi are all opening plants, or expanding existing plants, in the Southeastern U.S. along with several new plants in California. The Big Three American auto makers — General Motors, Ford and Chrysler — are also all showing signs of a promising turnaround:

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  • •    GM reported after tax profits of $4.7 billion in 2010, making it its best year since 2004;
  • •    Ford surpassed GM, with after tax net profit of $6.56 billion,
  • •    And, Chrysler, the smallest of the Big Three, announced that even though it saw a net loss in 2010, it expects to see net profits of $200-500 million in 2011.

They all are betting that consumers will trade in a sizeable portion of the 250 million cars on the road today for more fuel efficient, technologically savvy models.

All of these indicators show this is a promising market for factoring, but not one without risk issues. It’s important that we as financers support this industry that is vital to the health of our economy. Here’s how the factoring industry can effectively capitalize on this trend:

Help suppliers meet demand

With growth on the horizon, the suppliers to the automotive industry are ramping up production to keep up with the demand for new products and the increased interest in current models. According to Autotrends.org, the industry has begun to recover the hundreds of thousands of jobs lost over the past five years. The automotive industry now directly employs over 685k Americans – and is hiring again. It generates an additional 3 million jobs through the suppliers that support them.

Although suppliers are expected to benefit from this resurgence, they’re now experiencing the growing pains that come from a spike in demand without increased liquidity. According to the Automotive Supplier Barometer of the Original Equipment Suppliers Association (OESA), an increasing number of suppliers are seeing increased operational costs across the board:  Production labor premiums, material cost premiums, set-up and change over costs, expedited freight, and inventory carrying costs. More than 90% of suppliers say their predominate concern is an increase in material costs. It has already forced some companies into bankruptcy.

Step in while banks remain reluctant lenders

With the cost of materials on the rise, supplier pain is exacerbated by the difficulty maintaining and obtaining bank loans. According to Automotive News industry analyst James B. Treece, despite parts suppliers’ healthy stock prices, banks are holding back from supporting this important sector. This could be due to the losses banks took from this sector during the Recession.

Suppliers are fighting back with mixed results. They have lobbied to get access to the low-interest government loan offered to automakers. But even after they were able to influence Congress to redraft the U.S. Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Program to include suppliers, their ability to get the loans remains tentative at best. Even one of the industry’s largest suppliers, BorgWarner, was eventually denied a loan.

With government loans difficult to come by, factoring is an ideal cash flow solution for the automotive supplier market.

According to Marcus Ferrari, National Sales Director of Bibby Financial Services, “Currently, traditional bank lending is generally not available to automotive companies in the middle market so they must rely on asset based financing for working capital. But, as clients are pushing ABL lenders to generate more availability, ABL lenders are reaching out to factors that have international capabilities and purchase order finance companies to fill in the cash flow gaps.”

Bibby Financial Services had the opportunity to help an automotive manufacturing client that was forced into bankruptcy. Its sales fell due to the poor economic conditions in early 2009; they were in the unfortunate position of having Chrysler as their main customer at that time. Their bank called up their note on an otherwise performing loan before Chrysler declared bankruptcy, forcing the client into bankruptcy themselves. Bibby Financial Services received the client through DIP funding.

Understand industry tiers

It’s important to understand the automotive supply chain when entering this market.  There are three tiers of automotive manufacturing companies that will fuel this rebirth of the American auto industry. Each is defined by the end user of that company’s product.

Generally, Tier One suppliers provide full design, assembly and engineering support. They sell finished components, such as transmissions, seats and instrument panels, directly to car companies, known in the industry as Original Equipment Manufacturers (OEMs). Tier one is comprised mostly of large companies such as Delphi or Johnson Controls.

Tier Two companies mostly sell products to Tier One. An example of a typical Tier Two company would be one that supplies component parts, such as transmission gears, electronics, speedometers and seat covers, to the Tier One suppliers.

Tier Three suppliers generally provide smaller components and some tooling and dies to Tier Two companies. In practice, they sell to both Tier One and Tier Two.

“We consider all three tiers factorable,” says Robert Meyers, VP of Sales at Bibby Financial Service. “Tier Two is usually the most factorable tier with the lowest risk issues due to their size and position in the supply chain. Tier Three companies are factorable, but will have risk issues that need to be mitigated.

“We find that Tier Three companies typically will have the slowest paying customers because they sell to the second tier, which is waiting for cash from the first tier,” said Meyers. 

Tier Three companies that do tooling create special concerns for factors, according to Meyers. Tooling is usually billed in progress payments and it may take twelve months or longer to complete.

“There is always a chance the OEMs may change their product or not pay until it’s complete which creates liquidity problems for suppliers and risk issues for factors,” he warns.

Pursue credit insurance; beware contra accounts

Even with the Recession in the rear view mirror, pursuing credit insurance is a great way to mitigate risk in this sector and it is becoming easier to obtain again.

“Many Factors use credit insurance,” according to Scott Ettien, Senior Vice President of Trade Credit and Political Risks at Willis Financial Solutions. “It becomes a nice form of opening new credits and expanding existing lines, however, the availability of credit insurance will ebb and flow with the market sector and economic conditions. During the Recession, most credit insurers pulled away from automotive manufacturing companies but that is fading as individual financials and economic conditions improve. Because credit insurers monitor the market so carefully, they can supply an important third party expert opinion to bolster a factor’s own credit decisions which instills further disciplines during difficult times.”

Every tier may or may not also have contra accounts. For example, a Tier One company might supply materials to a Tier Two, which will then manufacture the product and sell it back to the same Tier One company.

“This can happen in any of the tiers,” according to Meyers, “but we tend to see it occur mostly in the top tiers where larger companies are involved.”

Review vendor agreements and purchase orders

With any tier of the automotive manufacturing industry, pay special attention to the vendor agreements and purchase orders. Some may have liquidated damages. The company may also have a performance guarantee that states if it doesn’t fulfill an entire order and the customer has to find an alternative supplier, they can charge the client for production costs as well as the costs associated with finding that additional supplier.

Facilitate flexible solutions

Finally, an important way to help companies in this sector is to bring together multiple lenders such as equipment, inventory and real estate financiers. You can then provide the maximum cash flow possible so these suppliers in every tier can help the US take its leadership position in the global automotive industry again.

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Goldman Sachs market analysis predicts the U.S. will emerge a strong exporter this year that will share in the growth of the emerging powerful Bric countries (Brazil, Russia, India and China).  Are you ready to take advantage of this trend?

The Export-Import Bank is also bullish. They say U.S. exports rose 16.6 percent in 2010 and are on track to double by 2015 in line with the objectives of the National Export Initiative.

These predictions are based on the surprisingly quick recovery of the global economy and the ability of the U.S. to avoid deflation through decisive policymaking, its underlying productivity, and a favorable demographic dynamic.  And, lack of personal saving – one of the U.S.’s greatest weaknesses – appears to be resolving itself; it’s up from close to zero to currently 5 to 6 percent.

As you evaluate if exporting is a good move for you, consider the following:

1.   Your product has done well in the US. What overseas markets will be able to use it? Are there local competitors? Will your product easily adapt overseas? How can you assess demand for your product in other countries?

2.   How will you sell your product overseas? Will you set up a local office, obtain a local agent/distributor or depend on internet sales? Will you need any special licenses to ship overseas? Will you be able to visit you overseas customers in person?

3.   How will you ship your product overseas? Have you identified international freight forwarders and freight costing?

4.   Does your company have the capacity to support additional production? Are you prepared to accommodate changes in labeling that might be required to conform to overseas markets? Have you identified translators who can help you with documents, labeling and even cultural issues that might arise? Can your current employees help with that or will you hire people on site to be your eyes and ears and provide market intelligence?

5.   How will you finance this growth in your business? What are the special financing tools required for international trade, such as letters of credit? Have you identified financing expert who can help you with these issues? How will you collect your invoices from overseas sales and protect yourself from bad debts?

For more information about how to navigate exporting your products, check our Bibby International Trade Finance reference guide to international trade finance.

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As our economy limps forward with stubbornly higher than predicted unemployment rates, temporary staffing remains one of the few industries that offer a sliver of good news. 

Temporary staffing numbers have grown steadily this year, according to an American Staffing Association report released last week. It says growth has been steady; hiring is 33% higher than the first week of 2010 and 24% higher than the same weekly period in 2009.

If the Fed can get the economy moving, staffing will probably see an even more dramatic uptick as companies scramble to fill positions. Turning to temporary staffing companies is a smart move for U.S. small businesses right now. It gives them a way to add some needed extra hands until they feel more secure about the future.

 
I encourage those who have given up on their job search or have skipped the temporary worker avenue in pursuit of full-time employment to think again – especially now, when our recent experience shows the timing is right. In this competitive job market, reaching out to a staffing company that can help you get your foot in the door to a reputable employer is a very savvy first step to take.

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Pledges are being made by banks to lend more in 2010, but I suspect small business owners will join the ranks of consumers (who have had these same banks pull their credit card lines and increase monthly minimum payments) in the “once bitten, twice shy” brigade.

Commercial finance companies, like the factoring business I work for (Bibby Financial Services) have spent the last six months stepping up to the plate and working with small businesses to help them get it done. This is the same throughout the factoring industry.

I suspect many a businesses owner’s New Year’s resolution will be to never be beholden to a bank again. Their behaviors cannot be predicted or, maybe one could say, they can be too easily predicted……

1.  Coming in first: “The check signers are on vacation/out of the office.” At 34%, the classic time buyer is still going strong.

2.  A close second, at 32%, blamed it on the mailman. “It’s in the mail” remains timeless.

3.  Coming in third with 14%, is the more current, and probably truthful excuse: Deflection. Blaming it on the bank.

Talking to our own clients we see the same trends. Although, in recent months, we have seen a 10%-plus reduction in the average number of days outstanding for the receivables we manage. A bit of “strong arming” you may think. But no, it’s based on these tips, which can help make sure you are top of the list when it comes to getting paid:

1.  Get them the invoice on time. No-one can approve or pay what they don’t have.

2.  A light and breezy early call. Just touch base to check with your client’s accounts payable team to confirm they have received the invoice and have what they need. Keep it conversational and quick. The “mislaid” invoice excuses will start to fall away.

3.  Shortly before the invoice is due, put in a follow-up call, again with a light touch. Check to see that they have what they need to pay and whether things are looking good for payment. It’s hard to use the “no-one’s in to sign” excuse when they have already told you it’s all set for Friday.

4.  It’s all about a routine. You will get to know the payment clerks and they will expect your call. You will also get to sense a change in tone when an excuse comes, as it’s harder to brush off someone you have got to know. For those clients who can pay, you will get your client “trained” to get your check into the run regularly.

Expecting some tips about “setting the collection dogs” on debtors? Nope. If your client can pay, and you don’t want to hear one of the top three excuses, these simple tips will help keep your cash flowing.

Any excuses you think should be on the top three or any tips for keeping the cash flowing? Love to hear them.

Scraping my memory back to the joyous days of economics classes and the wonders of “propensities to spend” and other snooze inducing words, I do recall one bedrock principle. Anglo-Saxons either side of the pond like to spend money, preferably money we don’t have and may never have. This wonderful philosophy has fueled our economies for decades. Is this the start of a new leaning towards saving, or us all getting our individual houses in order?

For the small business sector this is a flag on play as many provide services to consumers or to business clients themselves serving the consumer. One way or another what we collectively spend ties into what we can earn. This should be an area to watch; ultimately, I think once born a spender it is hard to give up and this is our way of waiting for the signs of better times. I would be interested in your thoughts.

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Your first call would naturally be to your bank. But banks can be slow as molasses, your line of credit may already be capped, or they can just say no if your credit rating isn’t top notch. Most businesses stop there. Unnecessarily.

I see this all the time — growing companies walking away from opportunity. This is one of the times when accounts receivables financing becomes a viable alternative. The cost of doing business with a factor can more than pay for itself, while you simultaneously improve your bottom line and grow market share.

Think about that before you say automatically say ‘no’ next time. Shouldn’t you do everything you can to put you in position to grow as the economic recovery begins?

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Be vigilant in selecting the right financing choice at every stage of your business cycle. You can help yourself immeasurably by remembering that the financing option you picked when you started your business may not be the right choice as you grow.

Small business owners basically have three choices for working capital finance: Banks, credit cards and factoring.

Credit cards are the most convenient — if you can find a company these days that wants to increase your limit. You pay for the goods when they’re ordered, cash flow is predictable. If your customers pay promptly, you pay off the balance each month and your cash position is solid, a credit card works for you.

But as your business grows, inevitably, not every customer pays on time, and credit card limits can be reduced without notice.  A bank loan becomes your affordable choice, if your cash flow is predictable and you can easily cover the costs of doing business. Bank loans are becoming like panning for gold as many banks apply stricter criteria than previously.

But what if you hit a bigger bump in the road? This is when the flexibility of factoring can work for you. It addresses the cash gap directly and affordably. It can also help companies respond quickly as the economy improves.

Remember, factoring is based on the value of the receivables and not on your own or your business’s credit score, so it can be an especially important form of financing for new or growing companies. Factors can also take responsibility for collections and other nuisance administrative chores.

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