2009 was a tough year. That is all I hear. For the existing portfolios, revenues were down for the most part last year; some publications have noted a 20% to 40% downturn last year resulting from the economic decline. Note that much of this may be dependent on the industry in which a factor may have a niche. Factors have been increasing their monitoring procedures to stay more in tune with their clients’ businesses and collateral performance. More research and credit limit adherence is being required for debtor credit. Think about what it says when bankruptcies increased 25% to 50% over 2008; tax lien filings increased over 25% from the prior year.
For new business, many of us have looked at more and more prospects to ultimately only fund the same number of deals. Issues arising from the economy last year have spurred additional due diligence and research on these prospective clients to ensure a long standing relationship will exist, or can exist in the first place. The question that always comes to mind: can you get out tomorrow?
So, where does that leave 2010? Well, we are well into the first quarter and business opportunities have been increasing, provided you have the capital available… but that is another discussion for another day.
By now, you hopefully have already evaluated your portfolios to determine areas of potential loss and/or weakness. You have also by now identified areas of improvement in your operations and portfolio management to help ensure proper checks and balances internally. For an extreme example, does your account manager handle the verifications, daily fundings, collections, and payment application for their clients? How would you know if something arose that should be a red flag? Maintaining appropriate checks and balances can be critical in today’s environment. Establishing certain communication protocols both internally and externally can prove to be invaluable within an operations department.
The recent increase in deal flow should, however, not equate to reducing the recently increased monitoring and account management standards. This year will be just as challenging for many as last year. Time and time again, I hear that factors are going back to the basics: maintaining verification and collection efforts, monitoring collateral trends in purchases and cash management, reviewing and adhering to debtor credit limits, and understanding the billing of the client and what they do (i.e., industry in which they operate, etc). Factors are also paying more attention to early warning signs that may be indicators for potential concerns.
All I can say is be prepared… be proactive and not reactive, as they say. Surprises are not always a good thing.
Wishing You Continued Success. The Factor Guru.