Mark your Calendar: TAG Alternative Strategies : Exclusive Event for Ohio Community Banks Wed Feb. 6, 10 AM

The Community Bankers Association of Ohio (CBAO) is hosting a special webcast on at 10:00 AM Wednesday, February, 6th , to discuss the current state of community banking and address the potential opportunities and solutions available for banks in a post TAG environment. Special guest, StoneCastle Partners, one of the largest investors in community banks, will provide an update on the current state of banking with an outlook on key issues facing community bankers in 2013.

Watch your CBAO newsletter or contact Kyle Moseman for additional information.

Factoring: What is it and how can it help banks and their customers?

Factoring the sale of invoices is one of the oldest forms of “lending”, dating back until at least the time of the Romans. It’s also one of the simplest and straight forward ways of converting assets to cash, yet it is often misunderstood.

Terms like “hold back,” “reserves,” “advance rate,” and “points” can put people on edge. Add to the fact that just about everyone tries to compare “factoring vs. bank loans” and it is no wonder many people leave the table confused. We all like to begin discussions about financing with terms, but discussing factoring costs in the same way we discuss loan terms is not the best way to help a customer understand factoring.

 Factoring is not a loan! It is a sale of assets. Therefore the customer is not incurring debt (or paying interest on that debt). The customer also has the flexibility to sell as many (or as few) invoices as they want. They are free to spend the money however they see fit, rather than in a manner approved as a part of a loan application.

Because the invoices are the source of repayment to the factor, they are evaluated more carefully that the client’s financials. Many companies that would not be able to obtain a loan can factor to raise cash, and do so quickly! Factoring could also be used in a “work-out” situation for an existing customer.

Why over-complicate the issue? If as banker we are asked to help a customer get cash, let examine the possibilities and let the customer decide what will work for them. Sale of invoices, which is all that factoring is, might be just the solution. It is routine in some industries: transportation, temp agencies, construction contracting, and others where there is a typical long lead time between incurring expense and receiving payment.

Other variables come in to play – especially when it comes to due diligence, but the factor will handle that. CBAO has identified numerous sources for factoring, some of which specialize in certain industries. If you have a customer who might benefit, let’s begin a discussion!