Fear Factoring – financial management – Brief Article
I OFTEN READ ABOUT COMPANIES, young and old, that are experiencing rapid and profitable growth. However, their business is on the verge of bankruptcy because cash receipts are not coming in fast enough to pay the bills. An article on this topic appeared in your August issue (“Bridging Fast Growth,” Newswatch), and offered tax forgiveness as a way to bridge the cash flow gap.
While such articles offer solutions to help cash flow, I am surprised at how rarely anyone appears to utilize one of the oldest cash flow tools available. Yes, I am talking about that nasty word “factoring.” Factoring, along with its relatively new cash flow tool, purchase-order financing, is used by countless firms to keep the bill collectors away while their cash flow catches up to its profitability growth. While many firms use factoring and purchase-order funding as a permanent funding source, many use it to bridge the cash flow gap until such time as more-popular institutional funding becomes available to fund growth.
As a CPA in his golden years, I was around when factoring was a high-rate, high-risk alternative. However, factoring has now become a widely accepted means of funding at rates that are often competitive with bank financing. Likewise, purchase-order financing, which advances cash based on a purchase order from a reputable customer, is rapidly becoming a widespread cash flow tool. It is particularly helpful for companies with lengthy timeframes between the time an order is placed by a customer and the time customer funds are collected.
Kirby Newton Jr.
Charlotte Chapter of American Cash Flow Association
Reliant Funding Group Inc.
Charlotte, North Carolina
Be Early and Stay Lean
CONGRATULATIONS to Mike Coke and AMB Property Corp. for their early reporting efforts (“First Mover Advantage,” Newswatch, September). In addition to the improved media coverage that their results will receive, they will find a fresh set of benefits from their focus on speed. The process streamlining, consolidation of tasks, and automation that they used to accelerate their reporting will also yield higher quality and reduced cost.
These are the same benefits that lean manufacturers achieve when they learn to make excellent use of time. A fast, reliable process reduces their need for other resources, like labor and working capital. Welcome to Lean Administration.
J. Stanton McGroarty
The Stanton Group
There Is a Choice
I ENJOYED TOUR ARTICLE on Linux (“Support Groups,” September). Thank you for a thorough and practical presentation. [However], you present the desktop issue as though it’s either a Linux or a Microsoft Office choice. It’s really not. I have a dual-boot system at home, such that I can choose if I want to log on to my Linux or Windows operating system. Another alternative is a Linux Windows emulator called Wine; that allows Windows applications to run under Linux. Another option would be to have some PCs in an office run under Windows and others run under Linux. Linux supports sharing services with Windows through SAMBA.
YOUR ARTICLE “SUPPORT GROUPS” was very interesting. One comment: You didn’t really make clear that, while NT fares very poorly, Linux can handle just about as many tasks as you want to throw at it with no real problem. (Sure, you need enough memory, and once you overload the CPU you need to add more horsepower, but in my experience, memory is almost always the limiting factor.)
On the issue of whether Shell or Hess is unusual [for buying and eschewing support, respectively], I think the truth will out that neither one is.
Rusty E. Carruth
YOU MENTION LINUX as a one-service-per-box appliance server. Practically all of the Linux installations that I create or maintain are multiservice boxes. Microsoft is infamous for [suggesting one service per box to improve performance]. Businesses like having only one box to maintain instead of one for mail, one for a database, one for the Web, one for directory services, and so on. I can point you to many Linux boxes that are router/firewall, scripting Web server, database server, E-mail server, name server, LDAP server, DHCP server, file server, and printer server all in one, and all on moderately priced hardware.
Come Onboard, Big Five
I READ WITH INTEREST your Special Report on IT Outsourcing (“The Virtues of Virtual,” August). The Big Five should also consider outsourcing to face their many challenges.
CEO and Founder
I READ WITH GREAT INTEREST your recent article summarizing the new rules for testing the impairment of acquired intangibles (New Deals, July).
While newly released Statements 141 and 142 do not change the rules for tax accounting per se, their adoption will highlight more than ever before the need for companies to integrate their financial accounting for intangibles with tax strategies they may have adopted that implicate the value or the useful life of intangibles.
For example, it is common for a U.S. corporation that intends to move valuable intangibles offshore to structure the transaction for tax purposes as a buy-in arrangement that requires a foreign subsidiary to pay a royalty over the remaining economic life of the intangibles. Likewise, a state tax benefit may be derived from the segregation of intangibles to enhance the corporation’s ability to manage and exploit the use of the intangibles. In such cases, the royalty paid by the affiliate that uses the intangibles must be defensible on an “arms-length” basis. The principles that the tax authorities employ to test the value and life of intangibles for such purposes should generally correspond to the rules applied under Statements 141 and 142. In all cases, the taxpayer should be able to explain the reasons for any divergence.
Companies that move to comply with the new accounting rules without an eye toward their tax position run the risk of getting caught in the regulatory cross fire. Those that appreciate the tax implications will often be able to use adoption of the new rules and the attendant valuation exercise to enhance their position vis a vis the states and the Internal Revenue Service.
THE INTERVIEW WITH Stuart Altman (“No Simple Remedies,” June) accurately described the current context of the health-care system, including the path on which each participant group arrived at this point.
Several health-benefits providers, including Humana, are developing innovative ways to solve the complex economic dislocations outlined by Altman. These new solutions involve using product designs, technology, process changes, and traditional market mechanisms to give all participants a more complete understanding of the total costs and benefits of the health-care system. A better understanding is the necessary first step to using the market to allocate cost and responsibility for the array of benefits provided by the health-care system. When fully implemented, this process yields better access use and navigation of the heath-care system at a reasonable, equitable, and sustainable cost by all participants.
Financial leaders, both as individual users of health care and as representatives of their respective organizations, can and must play an effective role in both the determination of the component costs and benefits of health care, and the fashioning of consumer-centric, market-driven health plans that are responsive to the needs of all participant groups.
Collaboratively developed market-based solutions are the most effective way to handle the severe dislocations described in the interview. The failure to develop and use such approaches to solve these problems will result in increasing individual and societal frustration with an increasingly ineffective health-care system, all of which will be financed by a growing share of plan-sponsor profits and the gross domestic product.
As a financial executive previously in several different industries and now in the health-benefits industry, I have been both a purchaser and a provider of health benefits. These experiences give me a high degree of confidence in the ability of financial executives to play a key role in helping to shape the responsive and sustainable health-care system all of us want and need, all without squandering ever-increasing amounts to obtain it.
The problems described by Altman are real and immediate. Our role as financial leaders is to develop and disseminate health-care cost information and fashion inclusive remedies. We are up to the task, so let’s get to it.
As the interview indicates, time and collective will are of the essence. We cannot continue to pursue a fragmented and noncollaborative approach while simultaneously expecting results other than the current unsatisfactory ones described in the interview.
James H. Bloem
Senior Vice President and CEO
I WAS DISAPPOINTED and dismayed to read no consideration of information technology deployment or HIPAA (the Health Insurance Portability and Accountability Act of 1996) security and privacy regulations in your interview with Stuart Altman. Nor was there any discussion of the effect of the conflicting, dysfunctional agendas among health-care entities that have led to higher administrative costs and lower levels of care.
When there are specific issues that need to be dealt with, it seems a somewhat meaningless exercise to discuss vague economic and political issues.
Kathleen A. Lucey
I AM CONTINUALLY AMAZED by the wailing and gnashing of teeth over the issue of health costs, when many of the causes of increased costs can be controlled down the road by people simply taking care of themselves today. The transportation industry and companies with large fleets learned a long time ago about “preventive maintenance.” Many health care providers attempt to educate their subscribers about good health practices, but getting people to discipline themselves is a tough sell.
I find it ironic that many people work hard all their productive lives, raise families, send their kids to college, pay off the mortgage, retire to enjoy the fruits of their labors–and then die shortly thereafter, because their lifestyle finally catches up with them. The medical profession estimates that most modern diseases are lifestyle-oriented, which means we have a certain control over them. I think companies would be wise to implement some type of-incentive for those employees who maintain good health. Getting older does not have to be equated with becoming unhealthy.
Responsible diet and exercise have proven time and time again to be the elements of good health and longevity. I coined a phrase that I think sums up the risk of not taking care of yourself: “Tampering with original equipment voids manufacturer’s warranty!”
Crossroads Diversified Services Inc.
Dirty Little Secret
CFO MAGAZINE SHOULD be commended for shining the light on corporate finance’s dirty little secret: The corporate financial and managerial club remains a bastion of “white guys in ties” (“The Illusion of Inclusion,” May). Sadly, your statistics are no secret in the minority community. Rather than implement diversity initiatives, many corporations bury their heads in their quarterly financials, while others are still run by “good ol’ boy” managers and boards. Four decades of complaints about the “lack of qualified minority candidates” ring hollow when very little is done to mentor and develop existing talent. It’s a shame that the catalyst for corporate change remains its reaction to bad publicity and lawsuits. The sad fact remains that the diversity of talent, opinion, and culture is an underutilized asset in Corporate America.
Kevin J. Garcia
Former Finance Manager
Albuquerque, New Mexico
I FOUND THE TITLE of your article on diversity in the workplace, “The Illusion of Inclusion,” ironic. I read it with the expectation that I would find myself included: a gay professional. Gay, lesbian, bisexual, and transgender people are part of a good diversity program. I am proud that my employer includes sexual orientation in its program, and actually reaffirms it through the company’s actions.
Scott D. Cady
Financial Management Group
Federal Reserve Bank of Minneapolis
A callout quote in “You’ve Got to Have Friends” (August, page 54) was incorrectly attributed to Toys “R” Us Inc. CEO John Eyler. The quote was in fact from Toysrus.com CFO Ray Arthur.
A photograph on page 50 of the September issue was incorrectly credited to Mark Wilson. The photographer was actually Jason Grow.
COPYRIGHT 2001 CFO Publishing Corp.
COPYRIGHT 2001 Gale Group