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Factoring
Provides Creative Financing For Growing Companies
By Laurie Burstein
Although factoring is a word probably not heard everyday
in business, it has been around since Colonial America when merchants
paid a middleman to collect money for them. Today the factoring
business is booming with many start-up companies and growing businesses
taking advantage of this alternate method of obtaining working capital.
 Kay
Berry,
KBK Financial |
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“Factoring is like using a credit card and has a lot of advantages
for small and middle market companies,” explains Kay Berry of KBK
Financial. Berry is a 20-year veteran in the industry and says she
has never been busier. The economic slowdown has led many companies
to seek alternative financing as banks tighten up on making business
loans. Also, many start-up firms have emerged as laid-off workers
start their own businesses and need access to working capital.
Factoring lets businesses use their accounts receivables and inventory
as collateral. Factoring companies like KBK purchase the company’s
account receivables in exchange for a commission, usually from 1
to 3 percent of the gross amount of invoices. The company gets immediate
cash, with the factor usually paying them 80 percent up-front, with
the remaining balance minus related fees paid as the receivable
is collected.
KBK then becomes the company’s credit and accounting department.
This means the client does not have to deal with credit and collection
problems. Companies using factoring are freed up to focus on sales
and profits, which can offset the commission paid to the factor,
while avoiding all of the collection headaches. The company always
has access to collections status, and KBK lets clients monitor their
accounts online.
Factoring companies are selective when choosing their clients. KBK
finances manufacturers, distributors, wholesalers, and service industries.
KBK does not finance construction receivables, private individuals
and medical receivables. However, they work with other factoring
companies that target these industries through their national network.
Peter Wolff, vice president of operations of All American Food Kits,
is one of KBK’s clients. His successful 18-month-old company makes
kits for items such as pretzels, fudge, funnel cakes, and kettle
corn, and sells them to national retailers like Wal-Mart. Wolff
began working with KBK when he was getting huge orders that needed
to be filled within 12 days. His company needed capital to get it
done fast and factoring fit the bill.
“Factoring worked very well for us as a new company,” Wolff says.
“We gave KBK our purchase orders and got 80 percent of our receivables
up-front. In effect, we got our cash flow back in 24 hours and were
able to fill the order on time.”
Wolff adds that factoring enables his company to pay its suppliers
within 10 days—a key issue when there are big orders that need to
be filled quickly. Wolff expects to continue to use factoring to
grow his business and likes the fact that he can pick and choose
which deals to finance using this method.
Berry agrees that factoring gives businesses the flexibility they
need. “Factoring is not a new method of obtaining capital, but I’ve
seen more business in St. Louis in the last year than I’ve seen
in my entire career.”
Berry manages the St. Louis office for KBK Financial, a 40-year-old
publicly traded company based in Fort Worth, Texas. Prior to KBK,
Berry founded a factoring division for Mercantile Bank. Throughout
her 20-year career, she has financed growing companies who were
unable to get traditional financing. In 2001, she received the SBA
Financial Services Advocate of the Year Award for the St. Louis
District.
Berry concludes, “The entrepreneurs I’ve worked with are very excited
about what they do, and I take a lot of satisfaction from helping
these small businesses grow.”
Laurie Burstein is a St. Louis-based free-lance writer.
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