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Expansion, Slowdown, Downturn, Recovery. If these are the four phases of the business cycle, we’re all intimately familiar with Slowdown & Downturn, but the question is – how far away are we from Recovery? The NY Times published an interesting article in July suggesting that based on the predictable cycle, we should be headed in that direction.
So, if that is the case, what are the preparations to position yourself for the turnaround? Norm Brodsky for Inc Magazine enumerated his top ten lessons learned from 29 years as an entrepreneur and included (#2) “A sale isn’t a sale until it is collected.” While it’s tempting to focus on sales, the reliance of growth on swiftly converting sales to cash cannot be overemphasized. Though outsourcing the processes associated with Accounts Receivable collections, FTRANS can vastly improve your access to capital and days sales outstanding.
In light of recent developments at CIT Group, one of the largest credit protection providers in the U.S., it is clear that there must be alternatives to traditional methods of trade credit protection. In today’s economic environment, it is simply insufficient to ask a potential customer for a credit application up front, check a few references, and fail to stay on top of an ongoing review.
That’s why FTRANS is migrating its customers to an innovative credit scoring model. This model uses front-end credit data to qualify a small business’s B2B customers, eliminating the need to purchase blanket insurance on all of a business’s trade credit. This strategy, similar to how B2C companies issue individual credit checks prior to extending personal credit, enables small businesses to make better- informed decisions on which customers are worthy of trade credit.
“In today’s economic environment, it is simply not enough to ask customers for a credit application up front and check a few references,” said Dan Drechsel, CEO of FTRANS. “At FTRANS, we’ve developed a model to help our customers determine the creditworthiness of their buyers. Small businesses need stability now more than ever and using a credit policy based on solid credit information is one way they can insure themselves without entirely relying on a third party.”
And FTRANS clients like it.
“We switched to a credit scoring model because we can’t afford to take a hit from bad loans and there’s no guarantee our credit will be fully insured by third-party lenders that may not be able to withstand the recession themselves,” said Mark Wecker, CFO of Southland Graphics. “FTRANS’ credit scoring policy is a simple, precautionary step I can take to ensure that I’m working with the right customers and protecting my business.”
Sramana Mitra writes about FTRANS on her Deal Radar blog today. Deal Radar highlights the details and marketing opportunity of emerging companies to watch. The article outlines the history of both John and Dan, explains how FTRANS works, and the FTRANS target.
On of the most interesting parts is an explanation market opportunity for FTRANS:
“The total addressable market for FTRANS is made up of SMBs in the US with annual sales under $200 million. These businesses sell more than $8 trillion goods and services to other domestic businesses and governments annually and self-fund these transactions at $1.2 trillion, annually. Firms with over $200 million in sales have greater access to reasonably priced capital and can operate credit systems for just about 2% of sales while smaller firms may spend 3%-5% to operate credit systems. FTRANS sees an opportunity to move this financing to financial institution, such as banks and thereby facilitate more efficient access to capital for SMBs.”
The article notes that there were $8 trillion in sales for companies that could significantly benefit and grow from the FTRANS product offering.
The most common question we get at FTRANS is: how is your solution different from factoring? Before we get into that, let’s recap what types of factoring are out there:
- True factoring is the purchase of accounts by a third party and a transfer of risk from the SMB to the factor. Not only is it very expensive, but it also puts your reputation at risk, as factoring invoices is done on a one-off basis and there is no incentive for a factor to maintain your solid client relationship.
- ‘Receivables Discounting,’ an alternative kind of factoring, that you are liable for and is now more common than True Factoring. It’s expensive as well, and again, there is no incentive for a receivables discounter to carefully manager the relationship with your buyer.
Now that doesn’t sound like the best way to run a business. Let’s break it down more and look at the 5 key ways FTRANS is different from factoring:
- FTRANS is significantly less expensive than factoring and accounts receivable discounting. Traditional factoring costs as much as 20 % – 30% of an invoice. FTRANS costs significantly less than that.
- FTRANS is a customer-friendly alternative to factoring. With FTRANS, you have the discretion to maintain your customer relationships. You still send the invoices, and your buyer sends payment to a lockbox, addressed to you.
- Unlike factoring, where the SMB makes discrete decisions on factoring each invoice, our system facilitates the capture of 100% of your A/R. You see a continuous view of your cash availability position with the bank, and you can drill down into the detail of your credit administration.
- Due to the credit background investigation completed by FTRANS, you have ongoing significantly enhanced insight into the credit quality of your buyers.
- Any disputes you face as a borrower, you now have the assistance of FTRANS as a professional third party.
On the other hand, FTRANS preserves a key advantage of factoring – its operational simplicity. We provide you with virtually the same ease-of-use as accepting a credit card for payment. FTRANS designed this new approach in B2B trade credit to be simple, safe, and based on familiar business processes.
Have you ever tried to get good information about who your potential customers are? We are working on a project to draw a picture of our ideal customer. That got me thinking. What if there was a dependable source where I could learn key information about my target market? What if I could find out good, reliable information on the average size of companies within a SIC code in my geographic area?
If you are a Peachtree accounting software user, which probably also means you are a small to medium business, it’s likely you cannot buy sophisticated market data. The latest version of Peachtree Software includes a module called Business Analytics. Business Analytics is primarily a tool to benchmark financial results against other businesses, sliced and diced by region, size, industry, etc. Why not use it to learn about your competitors or your customers? With more than 500,000 customers, the Peachtree userbase is an information gold mine. Plus, the information gets more valuable as more and more Peachtree customers use Business Analytics. And, get the word out about this new module; it can only help you.
