ARGYLE — Bret Pels did not plan to start a newbusiness, but somehow it organically came together four years ago. Pels said hehad always enjoyed his work in business and financial management, but peopleoften came to him asking for help.
“They need business management advice and, often,capital to stabilize the growth of their business,” he said.
Pels is now the president of FactOne Capital, acompany dedicated to the business of factoring, which is an asset-basedfinancing method where a company uses its commercial accounts receivable, forexample, the company’s invoices, to generate immediate cash. It is done byselling the invoices to a third party, called a factor, at a discount.
The factor may purchase a company’s accountreceivable portfolio and, upon confirmation, typically advance 90 percent ofits face value. A fee is taken from the remainder and the balance of the fundsis released once collected.
“Usually, small- and mid-sized companies are reallygood at providing a service or selling their product,” Pels said.
However, Pels said some businesses may lack thenecessary skills to operate their business or may be doing everything in theirbusiness that they may fall behind on collecting from their invoices or nothave enough financial resources to meet payroll or expand theiroperations.
FactOne helps businesses get organized, assiststhem in creating systems that will help improve the company’s profitability andcash flow, Pels said.
The company serves a variety of industriesincluding oil and gas, wholesale, manufacturing and distribution entities.
One of the FactOne Capital’s clients, Darrel Canada, president and owner of Canada &Associates, said factoring has allowed his business to expand.
“I probably would not have been able to expand asfast if I did not have the availability of the factoring,” he said.
Based in Abilene, his company is dedicated tosafety training, alcohol testing, safety equipment sales and other types ofservices. Canada uses factoring on a weekly basis and, by working with FactOne,has been able to save from $80,000 to $100,000 per year, he said.
Having access to cash has enabled Canada to buyneeded equipment for his company and has also helped him to pay for hisemployees’ travel and lodging.
“The traditional bank is not lending the way itused to,” Canada said. “I still have to meet my financial obligations.”
With most of his clients, Canada said he has towait between 60 to 120 days before he gets payment, even after he has completedthe work.
“Bret makes our cash flow easier. We can buy whatwe need and not need a loan,” he said.
FactOne has also helped Canada with more than justproviding account receivable management solutions. The company also helpedscreen his clients.
“They will call the companies to make sure the workwas done and the PO [purchase order] was correct,” he said. “They can alsoverify when I will be able to get payment.”
Through factoring, Canada said he is now able toavoid what happened to his business five years ago, when he saw a drop in theoil and gas field and 12 of his customers declared bankruptcy.
“I was out $135,000 and I never had time to collectfrom them,” Canada said. “They [FactOne] take that out of our hands.”
Cheryl Hill, a solution analyst with FactOne, saidshe has seen the business of factoring increase by 60 percent in the past fouryears.
Hill joined Pels in his business after shecompleted her master’s degree in business administration from Texas Woman’sUniversity.
“We have always been in contact, and when Ifinished my program, I wanted to do something different,” she said.
There are trade groups like the Commercial FinanceAssociation, based in New York, and the International Factoring Association(IFA), based in Avila Beach, Calif., with many members dedicated to thebusiness of factoring.
The Commercial Finance Association estimates asset-basedlending for 2012 reached $620 billion. Additionally, the Commercial FinanceAssociation, a group of nearly 300 members dedicated to asset-based lending andfactoring industries reported that during the fourth quarter of 2012,asset-based lenders increased their total commitments by 2 percent, a growth of6.7 percent over the past year.
The Commercial Finance Association also reportedthe fourth quarter of 2012 was the seventh consecutive quarter asset-basedlenders had seen an increase in their industry.
With more than 400 members, who include factoringcompanies, asset-based lenders and other receivables finance companies, BertGoldberg, executive director and founder of the International FactoringAssociation, said his association has more members from Texas than any otherstate in the country.
“Texas is home to 49 members of the IFA followed by48 members in California,” he said.
FactOne Capital is a member of the InternationalFactoring Association, Hill said.
Both associations also provide a formalcertification process for asset-based lending and factoring professionals,according to their respective websites.
Pels said his overall goal is to explain to smallbusiness owners the benefits of factoring including increasing the company’sbottom line, providing flexible terms and telling them that they do not needgreat credit or be in business for a long time in order to qualify forfactoring services.
“I have spoken with small business owners,high-level [C-Level] executives in large companies and management consultingfirms,” he said. “Unfortunately, most of them were not fully aware of thebenefits listed above and a large number of other financial benefits, which areequally or more important to management, such as not adding debt/leverage to thebalance sheet.”
Because of this, his company provides clients withconsulting services.
“We want to provide a solution,” he said. “When wetalk to someone, we try to find out what their problems are and help them tosee how our accounts receivable financing combined with our managementsolutions can benefit them.”
KARINA RAMÍREZ can be reached at 940-566-6878 andvia Twitter at @KarinaFRamirez.
FOR MORE INFORMATION
The fundamentals of Factoring
ABL LOANS OUTSTANDING
2000 — $342.7 billion
2001 — $314.4 billion
2002 — $325.9 billion
2003 — $334.1 billion
2004 — $362.1 billion
2005 — $420 billion
2006 — $489.3 billion
2007 — $545 billion
2008 — $590 billion
2009 — $480 billion
2010 — N/A
2012 — $ 620 billion
**Data is unavailable from CFA for 2010 and2011 due to a change in CFA’s survey methodology. The estimates are based onextrapolations of data obtained from CFA members and other sources such asgovernment agencies (e.g., FDIC) and trade publications (e.g., AmericanBanker).
Source:Commercial Finance Association