Over the last 15 years people have repeatedly asked me, exactly what is factoring? The answer is never a short one sentence explanation because defining this form of financing, people tend to judge it by comparing it to their own experiences in borrowing.

Factoring has long suffered from this comparison because the center of the comparison has been only around cost. This type of comparison doesn’t work because most factoring programs are really a combination of a form of receivable financing combined with a form of outsourced credit, receivable management and collections services.More precisely it is the PURCHASE of accounts receivable as opposed to a loan against A/R.

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When the question of “Niche” factoring is discussed, someone often asks if Freight Factoring should be considered a “Niche” as we do other specific markets such as the garment industry. Freight Factoring should be considered “Niche Factoring” if for no other reason than there are currently so many factors concentrating on just the Transportation Industry.

With deregulation of the Transportation Industry in the 80s there has been an explosion of new Carriers, Brokers and Freight Forwarders. The number of carriers has risen from roughly 5,000 licensed carriers to nearly 50,000 and Brokerages have increase from approximately 500 to over several thousand nationwide. These new and emerging companies are generally not bankable and yet have a tremendous need for working capital financing. This has led to the rapid growth and expansion of Factoring Companies and Asset Based Lenders (ABL) with Factoring Divisions.

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Small businesses, by definition are generally considered to be those with 50 employees or less. They do not have the resources to tackle entire industries or markets. Nor can they survive many mistakes because of their limited financial resources. The fact is that mistakes cost money; lost money has a very negative impact on cash flow; and cash flow is the life blood of any business, especially the small business. Consequently, a small business’ management team needs to be very accurate in their strategic thinking. Accurate or precise thinking will lead to fewer mistakes. Fewer mistakes should improve or at least benefit cash flow and a strong cash flow reduces vulnerability.

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