Taking The Fear Out of Factoring

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Hardware stores were next, with chain operations like True Value eager to have a service that would give their members cash to maintain their inventory without burdening their suppliers. Because they could offer their customers credit, and keep their shelves well stocked, smaller stores themselves found it less difficult (it still isn't easy) to compete against Home Depot and other big box retailers. So far as the customers of these stores know, they have a charge account with the store itself, and a credit relationship is always a source of loyalty.

What actually happens when the customer charges a purchase at one of these stores? A clerk punches in the customer's identity and the details of the sale. The message goes to a printer in the store, which generates a record for the customer and the retailer. At the close of the day, an electronic message is sent to Leff's computers, along with all the other transactions of the day. Leff deducts his 2 to 3% discount, and usually enough to maintain the roughly 20% reserve, then transmits the rest to the store's bank account.

If the invoice goes unpaid past the due date, one of Leff's dozen former bank credit analysts may talk with the business owner about ways to collect the money. Any bill that isn't paid after 90 days will be spit out of the computer and the money deducted from the store's reserve account. When customers are slower paying than Leff expected, he may charge the store a greater discount than 3%; if the bills are paid more quickly, the store can get a better deal.

The bills the customers receive at the end of the month are generated not at the store (even though it may look exactly that way because the bills feature each store's logo) but in the CDS offices in Lynbrook. The P.O. box to which the payments are sent is classic "lockboxes" emptied by CDS, not by the store the customer thinks has sent the bill.

Leff also offers his clients a credit card, which looks like a charge account from the customer's point of view but feeds directly into CDS. Though his billing business is now ancillary to the financial business, Leff still attracts many customers strictly for the CDS billing service.

The CDS computers keep track of the aging of invoices from every client, plus information from other sources, and produce an internal report Leff calls the "Daily Flash." This starts with a snapshot of the firm's position at the close of business the day before, adds some generally available economic statistics, and analyzes changes that might impact on credit. Based on the Daily Flash, Leff and his credit officers may impose credit freezes on a store's customers, increase or reduce a customer's credit line, or take other action.

The seal of approval of his product, Leff feels, was the recent decision by Staples to make CDS the exclusive provider of credit to its online customers. This recognition has fed Leff's ambition. "In the future," he says, "I want the small-business community to think, I get my payroll from ADP, I get my insurance from Hartford, and I get my billing and accounts-receivable analysis from CDS."

Finding a Factor

The factors listed below are all members of the Commercial Finance Association, the major trade group for the industry. It doesn't include every local factor or specialized factors, such as UPS.

Access Business
Finance LLC
Bellevue, Wash.
(425) 747-9090

Access Capital Inc.
New York City
(212) 644-9300

Accord Financial Corp.
Montreal
(514) 866-2711

Action Capital Corp.
Atlanta
(404) 524-3181

Advantage Funding Corp.
Atlanta
(770) 955-2274

AeroFund Financial Inc.
San Jose, Calif.
(408) 360-2898

Alliance Bank
Culver City, Calif.
(310) 410-9281 ext. 310

Allied Financial Corp.
Atlanta
(770) 730-0101

American Commercial Finance Corp.
W. Hartford, Conn.
(800) 970-9997 ext. 11

AmeriSource Funding Inc.
Houston
(713) 863-8300

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