Factoring firms, who do not offer credit insurance, are finding out that clients are increasingly seeking a "suite of financial services."
Factors, companies that lend money against accounts receivable, also said they don't see their factoring business as a directly competitive product to credit insurance.
"Our typical client usually needs a little more than credit insurance," said Kevin Sullivan, executive vice president and West Coast regional manager of Wells Fargo Century. Typically, factoring is focused on offering services beyond credit guarantees, he said.
"Credit insurance has been around for a long time. In certain cases, it's a very nice product. The difference between credit insurance and factoring is that credit insurance is purely that," said Michael Stanley, executive vice president of Rosenthal & Rosenthal.
Generally, an insurer offers to insure part of the client's loss, much like a deductible on home owner's or auto insurance, explained Stanley Officina, president of Ultimate Factoring Solutions. In addition, clients have to maintain staffs to make credit decisions and do their collection efforts.
Those services are among those offered by factoring firms and often bundled with them for clients, sources said. Factors have professionals dedicated to making credit decisions and collecting accounts receivable for their clients, Officina said.
Companies seeking more than a credit guarantee must look further. "Our client base is, generally speaking, in addition to the credit guarantee, looking for borrowing and the business process outsourcing of our collection and accounts receivable management services, which insurance companies don't provide," said Andrew Tananbaum, president and chief executive officer of Capital Business Credit.
The credit insurance industry offers a very specific product, which is very standardized, he said. The contracts don't vary as much from client to client as factoring.
For some companies, the chance to outsource some of their business needs can be of great value, factors said, which leads an increasing number of them to outsource as much of their business as makes sense.
"What you'll see is companies that do a fairly sizable sales volume with a limited number of people. If you think about how a lot of companies operate today, they may outsource logistics, they may outsource production and they outsource credit collections, which is what a factor does. The company focuses on the sales, design and distribution of product," Sullivan said.An additional element to keep in mind, factors said, is that their industry is closely tied to apparel manufacturers. Factoring services have developed in tandem with the apparel industry and factors can offer a depth of specific expertise.
Factors said that, while credit insurance companies offer a competing product, they don't directly compete on many accounts because manufacturers and designers will look for the financial services that best meet their needs.
"It's really just a question of what the average company is looking for. The less a company is looking for in the way of services typically provided by a factor, credit insurance may end up being something that's viewed as an alternative," Sullivan said.
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