The Right Deals for the Right Reasons; Why 2016 Requires Old-Fashioned Discipline


The factoring industry is wrapping up a challenging year. Traditional banks, which retreated from factoring for several years, bounded back onto the playing field with aggressive pricing and terms. Online-invoice-lending picked up steam, added players, and was backed by a variety of unlikely investors, including actor Ashton Kutcher and Amazon founder Jeff Bezos. Of course, we had the familiar competition within our industry. It was crowded out there! It sometimes seemed there were more lenders than borrowers. New clients, and new opportunities came through the door, but there were hurdles to jump. A low-interest rate environment drove demand for low pricing, terms favoring borrowers, and speedy deal decisions. The importance of disciplined deal making was never greater, but it sometimes gave way to a lenders’ appetite.

2016 Interest Rates: Cautious Fed is a Good Model

The year is nearly over, but the coast is not clear. Up ahead, 2016 looks a lot like the year we leave behind. Many clamor for an increase in interest rates. To some, the Federal Open Market Committee (FOMC), and Chairwoman Janet Yellen, are overly cautious. However, their decision making might also be described as prudent. The economy is expanding; but it is fragile. Economic growth slowed in the third quarter. In early November, Yellen said that the U.S. economy is performing well, but is being held back by weakness abroad. The FOMC doesn’t want to risk a disruption to the recovery. Rates will rise, perhaps in December, but further increases will come slowly.

Import and Export Prices

Concern about a lack of pricing pressure is key to the Fed’s position. Yellen’s target is 2 percent inflation. Import and export prices have been falling for a year. Import prices reflect low commodity prices and the dollar’s strength. Export prices reflect global deflationary trends.


October’s report from the Institute for Supply Management (ISM) showed activity in the manufacturing sector expanded 34 consecutive months. But, of the 18 industries represented, only seven reported growth in October, including furniture and fabricated metal products. Nine industries contracted, among them, petroleum, transportation equipment, and electronic products.

The Consumer

Yellen is monitoring the consumer. Rising employment is positive news, but it isn’t enough to guarantee a rate hike. The Fed’s concern is stagnant wages. One sign that wages may head up is a report from the National Federation of Independent Business (NFIB) indicating its members have solid hiring plans, and expect to compete for a smaller pool of qualified employees.

Auto Sales

Auto sales rose with employment. U.S. automakers reported double-digit increases in October sales — the highest in a decade. General Motors (GM) expects a record year. Sales were helped by low interest rates and gas prices, and with both expected to remain low, 2016 should be great for automakers.

The sales surge has positive ramifications on the overall economy. In the small town of Hamtramck, Mich., bordering Detroit, GM invested $1 billion in its assembly plant over the past six years. To meet demand, it is adding a second shift, and more than 1,200 new salaried and hourly jobs.

Housing and Construction

Before raising rates, the FOMC will consider the recovering housing market. In October, the National Association of Realtors (NAR) reported sales of existing homes increased for 12 consecutive months, and 2015 will be the best since 2006. Rising employment and low mortgage rates brought buyers. Affordability is a concern; rising rates could impact sales.

Retail Sales

The University of Michigan’s Consumer Confidence Index was up in October, but lower than expected. Wealthier consumers worry the unstable geo-political situation will negatively impact financial markets. Consumer spending is cautious. A report from American Express said more than half of small businesses do not expect holiday sales to increase, but the National Retail Federation (NRF) forecasts a rise of 3.7 percent. This is higher than the 10-year average of 2.5 percent.

Then There Was Oil

Last November, oil was $75 per barrel. Now it hovers between $42 and $45. This helped consumers deal with stagnant wages. But low prices caused a cascade of challenges in the petroleum industry being felt throughout the economy. Analysts predict low oil prices will persist through 2017, and perhaps beyond.

For Factors: 2016 Realities and Opportunities

When interest rates begin to rise, it’s not an “all clear” signal for factors. This year’s low-rates make it possible for some to eke out a profit. Those profits might disappear when rates increase. For some, the cost of funds may rise. If so, that, along with competition on pricing and terms, will make it more difficult to find worthwhile deals.

Tough conditions in oil and gas may force banks to exit the market, and allow factoring companies to regain business. Banks entered the space in recent years with lower prices and aggressive terms. Now, conditions may shift in favor of factoring companies. Traditional banks will soon receive year-end statements from these clients, and may not be prepared to stick with them. Seeking to limit defaults, regulators are monitoring these loans, and want banks to reduce exposure. If, as predicted, prices remain low through 2017, suppliers and manufacturers will need credit to get through the prolonged rough patch. Factoring companies may be in the best position to provide it. Keep in mind that the average invoice size will be smaller next year, and same-customer sales may go down as well. There is plenty of turbulence ahead. Proceed with caution.

Factoring will be favorable for manufacturers supporting automotive. They will need cash flow to keep up with demand.

Trucking is benefiting from the recovery, healthy construction activity, a stronger consumer, and low oil and gas prices. Factors are in a good position to provide cash flow to this segment. Low oil and gas prices may lower average invoice size, along with same-customer sales.

Other Niches

There is opportunity in staffing, services, and companies supplying to retail. Staffing benefited from economic uncertainty the last couple of years. According to the American Staffing Association, sales dropped from $111 billion in 2008 to $80 billion in 2009, and then rose gradually. In 2014, sales reached $130 billion, and will go up approximately 7 percent this year. Factors are important to this sector because it now faces competition for talent from companies offering full-time jobs.

Furniture sales rose along with house sales, and the industry is reportedly outperforming the rest of the economy. Manufacturers and suppliers will need credit to continue growing.


It used to be that financial companies with the ability to provide credit held the keys to securing business. Today, there are more options for accessing credit than ever before. The market for speedy access to cash has grown, primarily on smaller transaction amounts. It’s increasingly dominated by online-invoice lenders offering a quick fix to businesses with pressing needs. What these borrowers may be missing out on is the personalized service and relationships offered by quality factoring companies. It‘s too soon to tell if online-invoice-lenders are a permanent part of the landscape, and it will be a while before their model is truly tested. For now, they are attracting plenty of media attention and private investment. Watch this sector.

Retaining Clients

Individual companies, and the industry, need to be proactive about retaining clients. Factors are no longer a high-cost credit option. We add value with supportive services and expert counsel. Success is most satisfying when we improve the overall health of our clients’ enterprises and help them grow.

Attracting New Business

For factoring companies, growth is possible in 2016; robust growth is not likely. Hiring will be flat, so in order to generate new business, it will be essential to guide the efforts of your existing sales force. Consider new ways to add value or products but don’t veer off course. Know what your company does best, and do that.

Controlling Cost

The companies that stand to perform best are those that monitor and control expenses. They will choose deals with the margin and terms necessary for these transactions. They will say no to deals for deals’ sake.


I look to technology for efficiency and to enhance client satisfaction. Tremendous strides have been made in cash management, and in liberating staff from onerous paperwork. Technology is transforming the way we move money. But it is not a substitute for sound intellectual credit decisions. The industry should be concerned about business models that rely solely on data before extending credit. Technology can’t replace the client relationship, nor reduce the importance of value-added services. Every day, we are able to contribute to our clients’ successful business outcomes, and influence our deals.

Reinvention, Survival, Success

To succeed, businesses must continuously reinvent themselves. We can add products, extend geographic reach, and expand specialization. The ability to serve many geographic areas and multiple sectors provides some protection next year. It’s important that we are attentive to the economy, and proactive about costs and opportunities. All the while, we need to assess risk. I’m an ardent believer in risk taking when I know the risk I am taking. In 2016, it’s wise to stick to basic blocking and tackling.

Dave Tull
Founder, Chairman and CEO
Crestmark Bank


The original article appeared in “The Year Ahead” issue of The Commercial Factor, a publication of the IFA.