Factoring on tap for financially strapped businesses

According to a survey by the Federal Reserve Bank of New York, U.S. startups were nearly twice as likely as firms in business for more than five years to be adding jobs and growing revenues (43 percent versus 22 percent, respectively). At the same time, more startup executives admitted to being discouraged from applying for financing (27 percent versus 13 percent), despite facing perceived financial shortfalls (69 percent versus 54 percent).

"Startups are the primary drivers of U.S. job growth, and their success is essential to a healthy economy," said Claire Kramer Mills, Assistant Vice President and Community Affairs Officer for the Federal Reserve Bank of New York. "Although financing is important for all companies, it's especially critical to these young firms who need funds to weather initial costs and grow."

While banks and online lenders were the most common sources for financing cited in the Fed's 2016 Small Business Credit Survey: Report on Startup Firms, alternative finance methods such as accounts receivable (A/R) factoring are poised for growth, at least in other global regions.

Germany-based Wirecard AG and Billie GmbH, for example, are betting on the factoring market, which last year saw sales rise 3.77 percent among members of the German Factoring Association. The two companies have worked collaboratively to bring digitized payment processes to online factoring. Billie said it plans to offer small and midsize businesses an opportunity to pre-finance invoices by purchasing all liabilities from third parties and settling the outstanding amount.

A/R factoring foots the bill

In The Green Sheet Street SmartsSM article "Accounts receivable factoring," issue 17:01:01, author John Tucker wrote that "to assist with cash flow issues stemming from having to wait 10 to 120 days to receive full payment, merchants can utilize A/R factoring." He said factoring companies typically advance about 70 percent upfront and the remaining 30 percent after the merchant completes the payment cycle, up to 120 days, minus a 2 percent fee.

But a lot hinges on automation. "The special thing about Billie is that it is less complicated than conventional factoring," said Christian Grobe, founder of Billie. "In just a few clicks, Billie clients can receive a monthly funding framework of up to 200,000 euro via a traditional factoring contract but without any long-term binding commitment. Outstanding invoices can be easily uploaded with the result that the invoice amount is paid out in full immediately."

Thorsten Holten, Executive Vice President Sales Financial Institution and FinTech Europe at Wirecard, added that the collaboration will enable Wirecard to "support promising, innovative startups which may benefit not only from our experience in the field of fintechs, but also from our technical solutions for payment processing and digitisation of processes. In addition to all this, our clients can take advantage of our banking license when needed."

Editor's Note:

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