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DSO for the manufacturing industry has drastically increased from 2008 to 2009. In 2008, the average DSO was 43 days, while in 2009, the average DSO was 55 days. In addition, Days Payable has increased. From 39 in 2008 to 51 in 2009. Is this a sign of the times? Check out other analytics below with data provided by iLumen.
So you’re interested in exploring other forms of financing, but you’re not sure about all the details. Maybe this chart will help you understand the difference between bank loans, factors, and FTRANS.
Is the biggest part of the economy getting ready to rebound? The U.S. economy experienced a 1.3% increase in purchases, an increase that was larger than expected, and also 0.3% higher than the previous month (also higher than expected). Experts suggest we can thank the “Cash for Clunkers” program in part, but the rise in spending expands to other industries. In other good news, incomes climbed 0.2 percent for a second month and inflation decelerated. To read more about the economy in August, check out the Bloomberg article here.
According to the WSJ, small-business loans are up at many of the nation’s lenders, but business isn’t exactly humming, and growing apprehension about commercial lending could leave a substantial number of firms without a source of capital.
JPMorgan Chase, the parent company of Chase Bank and Washington Mutual, said it issued about $1.5 billion in loans to 4,177 small businesses with revenues up to $10 million during the second quarter, up 32% over the first quarter.
However, lending is still 60% of what it would be in a normal economy, according John Asbury, the executive vice president of business services at Regions Financial, even though that is an improvement from the 50% it was at last year. To read the whole article, and to read about how the SBA is dragging it’s feet, click here.
Most people are aware of the rise in corporate bankruptcies (bankruptcies have increased 22% August 09 over August 08), but some of the names on the list are still jarring. We’ve watched financial companies like Lehman Borthers and WaMu go bankrupt, but check out the 10 big companies Yahoo predicts are headed towards bankruptcy:
3. Sprint Nextel
8. Advanced Micro Devices
9. Las Vegas Sands
10. Interpublic Group
The list spans industries and geographies To read the whole article, and more information about each company, click here.
We did, at least according to FTRANS Founder, John B. Hayes.
We killed the economy. You, me, the real estate agent next door, the home builder, the mortgage banker, and everyone else who bought, sold, built, appraised, financed, or refinanced a home between 2000 and 2006. The fundamental problem is that the value of houses became highly inflated. Who created this housing inflation? We did. We wanted larger houses, which builders built, agents sold us, and lenders financed.
The entire nation celebrated the increasing value in the price of housing as a good thing. Very few were asking the question “can we afford houses twice as expensive?” We were making too much money to ask if it was sustainable.
It did not take much of hiccup to kill the cow. Default rates started to climb and everyone started looking at what was the real value. Investors found themselves holding notes secured by mortgages on real estate that was nearly 50% overvalued – across the country. This is not just in low-income communities, as some have suggested. The data does not support the allegation that this collapse is entirely the fault in “sub-prime” mortgages. It certainly contributed, but the borrower in Alpharetta who was making $250,000 a year and bought a $1 million house is just as much to blame as the borrower who made $30,000 and bought a $120,000 house.
The problem of course is not just in housing. The artificial infusion of extra cash into the economy from the housing bubble has stopped. Real incomes are continuing to fall and everyone is spending less. As the economy moves at a slow rate, the value of commercial real estate will continue to drop, and there will be continuing business and bank failures.
So, what happens to get us out of this? First, the $5 trillion of phantom equity in residential real estate has to come out of the economy. Much already has, a significant percentage of which has been absorbed by all of us in some fashion, including the government’s rescue of the economy to cover the excessive build up of debt from 2000 to 2006. Real price of housing has to come into line with incomes – something close to the 2.3 ratio of the past 30 years, which is happening. However, since real incomes are continuing to fall, the price of housing has to continue to fall until this equilibrium is achieved. And, the fall in business revenues and profits has to bottom-out and the coming problems in commercial lending have to pass. I think it is going to be a long, slow process. Read the whole article here.
Dear Karen: Sales are down but service calls are up at my firm. How can I fund labor costs with sales revenue dropping?
Answer: Service companies have a longer cash cycle than product-based firms because they pay employees well before they collect invoices. You need to raise capital to bolster cash flow. Traditional sources include loans from friends, family and angel investors, bank loans and factoring. A bank loan is cost-effective but difficult to get today.
Factoring involves selling your invoices to a financing company that pays you upfront, collects your revenue and charges you a fee, which can be costly. Make sure your profit margin can sustain the expense.
Another alternative for business-to-business firms is applying for a secured accounts receivable line of credit from a bank that partners with an accounts receivable monitoring firm. Dan Drechsel, chief executive of FTRANS, one such firm based in Atlanta, says his firm collects accounts receivable and performs credit checks for small firms. This service can also help entrepreneurs qualify for loans under the U.S. Small Business Administration’s CapLine program for working capital needs, he said.
The recent financial troubles at CIT Group have ignited serious fears among hundreds of thousands of small businesses that have financial relationships with the company.
With the small-business economy already suffering due to limited access to credit and capital, insufficient bank lending, inadequate government stimulus and a decrease in net revenue, the extinction of the nation’s largest credit-protection provider would have created another major economic setback.
While the CIT situation seems to have at least temporarily stabilized, what can SMBs do in the meantime to better protect themselves?
One suggestion is to develop an independent credit-scoring model. In today’s economic environment, it’s simply insufficient to ask a potential customer for a credit application up front, check a few references and stick a copy of its financials into the filing cabinet. Whether a business is selling to a small or large company, it’s important to stay on top of the creditworthiness of every client, vendor or customer.
Implementing a credit-scoring model offers three primary benefits for small businesses. First, in combination with reviewing customer financial statements, credit scores inform sellers as to the creditworthiness of their customers. Second, small businesses can set their approval rates based on the credit score of their prospects and their tolerance for risk. Lastly, credit-scoring models enable a small business to continuously monitor the creditworthiness of its customers.
For more details about how it works, check out John Hayes’ byline on thestreet.com.
Inc. Magazine announced it’s prestigious Inc. 500 list today, and FTRANS is listed as #345. From 2005 to 2008, FTRANS achieved a record 718.4% growth making it one of the fastest growing private companies in America. Congrats to all of the FTRANS team for the accomplishment and hard work!