receiving numerous creditworthy referrals
by banks, said Robyn Barrett, managing
Barrett said that she expects a fair
amount of those new clients to defect back
to their banks within two to three years
after the institutions completely thaw
their lending operations. For now, Factors
Southwest is using the extra business to
build retained earnings without having
to increase its overhead significantly to
service the additional clients.
Barrett’s company has become leaner because several years ago it went “paperless”
by automating all of its factoring functions
online. More and more smaller factors are
moving in this direction, she said.
“Not only has it reduced our expenses,
but it’s made us more competitive — our
fees don’t have to be as high,” Barrett said.
“Clients also find it easier because they get
all of the reports online, which makes us
look like we are bigger than we are.”
Another small factor, Far West Capital
Inc., had a better year than before, but a
good part of that was because the Austin,
TX, company just formed in 2007 and its
portfolio and earnings grew from a smaller
baseline, said Far West president and CEO
Cole Harmonson. A number of Far West’s
senior executives came from Texas United
Bancshares in La Grange, TX, which spun
off its factoring business when it sold itself
to Prosperity Bancshares.
Although business overall has been
good for Far West, the new company has
had its share of bumps, including a client
that engaged in fraud. In 2009, Far West discovered an incident of collusion between
one of its clients and the client's customer,
which falsely validated phantom invoices
on behalf of the client, Harmonson said.
“We’re relearning some old lessons: character matters,” he said.
The industry across the board has
been able to charge higher rates because
of the inherent risk of the recession, but
BB&T’s Linder said that today’s rates are
actually more realistic than they were
during boom times.
“I think we had been irrationally too
cheap before,” Linder said. “I think the
competition had gotten a little bit out of
control — there were some players that
had become desperate because of their
financial situation and priced too low —
but now the industry is moving toward
a rational level of pricing.” Still, clients
haven't pushed back much, because they
have been cognizant of the riskier environ-
ment, Linder said.
Katie Kuehner-Hebert is a veteran journalist
with nearly three decades of experience. After
serving ten years as a reporter for the American
Banker, she now specializes in financial issues.
Kuehner-Hebert is based in San Diego, CA.