In another bold move to assist the economy the US Government released its intention to start Factoring US Auto suppliers invoices to the automotive sector.

NY Times (03/19/2009):

DETROIT ” The Obama administration moved on Thursday to stabilize the American auto industry by creating a $5 billion fund to support troubled parts suppliers.

The program will provide supply companies with much-needed access to liquidity to assist them in meeting payrolls and covering their expenses, while giving the domestic auto companies reliable access to the parts they need, the Treasury announcement said.

So what does this mean for the industry? Until the details are rolled out is hard to say specifically, but the announcement to get into the Accounts Receivable Factoring business is the latest installment of how far the US Government will go to get the economy back on track.

As I mentioned in a prior article that I predicted that Accounts Receivable Factoring is going to play a major role in the rebuilding of our economy ended up to be quite accurate.

Not everyone is familiar with Accounts Receivable Factoring so I will give you a quick overview. In it basic form, Accounts Receivable is a Line of Credit for Businesses which advances companies funds based on their Invoices that are outstanding.

In an average Accounts Receivable Factoring facility, the company that is financing their receivables will be eligible to receive between 80% and 90% of the invoice face value. One the end customer pays they will receive the balance of the funds less the finance fee,

The Factoring fee will vary depending on the advance rate and the days the funds are outstanding but the average is around 2% to 4% per month.

What is often used with Accounts Receivable Factoring is Purchase Order Finance. If you do get Purchase Order Finance you will need an Accounts Receivable Factoring line to go along with it in 99% of the cases I have seen.

This option works best for distributors but Accounts Receivable Factoring can work for companies in nearly any sector. If your company needs financing like this, the best option is to speak to a Professional Commercial Finance Broker because they will be up on all the trends and latest programs available through the various lender channels.

Generally speaking, the service of the Professional Commercial Finance Broker will not cost you anything as they are paid by the lender.

It is little surprise over the outrage that has been fostered over the AIG bonuses paid out last week President Obama has given specific instructions to do what ever is necessary to stop the abuse and the AIG irresponsibleness to the American public.

The buck stops with me, Mr. Obama said. And my goal is to make sure that we never put ourselves in this kind of position again.

You can definitely see that anyone that is following the AIG story is very impressed with the Presidents posture on the events and it will be interesting how the events to come unfold.

This money doesnt belong to A.I.G., said Representative Steve Israel, Democrat of New York. It belongs to the American taxpayer and we are going to get it back.

I have not spoken to one person that disagrees with this comment. Congress has decided to ask the AIG Executives to pay back half of the money they have received in a plea of fair play, and there are some executives that are willing to give back the entire bonus they have received which just shows that some of them really do see the error in their ways.

But waiting on the honor system to work under this scenario is not very practical. After all, these were the same individuals that put the company in its current predicament. Congress is absolutely right as they head to the House of Commons to draft a special Bill for the recipients to get taxed so much on these bonuses that they will in effect be paying it back regardless.

So far, the names of the AIG Executives have not been released as Mr. Liddy feels a responsibility to protect them for the moment as there have been graphic death threats to them and the last thing we need is for this to turn into a hit list. While I expressly agree that the AIG Executives should give the bonuses back, we can not go around killing them over this.

While the AIG did take advantage of the situation, there actions were not blocked by the people that put the package together in the first place. We need to formulate a plan to fix this and ensure it does not happen again.

I cannot help but revert back to the normal world of Commercial Finance and the way that Business Loans are supposed to be underwritten. If the government is going to be in the business of giving out Business Loans then they need to get the process down to an art really quickly. While Mr. Liddy does have an impeccable career in managing Insurance Companies, perhaps there should be someone heading up the Business Loan division of the US Government to make sure this is corrected and future bailouts will not end up like this.

As promised the Federal Reserve lashed out at the economy doing another bold move today proving that they are not going to sit back and wait for the economy to fix itself.

Today, the NY Times reported:

WASHINGTON ” Saying that the recession continues to deepen, the Federal Reserve announced Wednesday that it would pump an extra $1 trillion into the mortgage market and longer-term Treasury securities in order to revive the economy.

If the Federal Reserve keeps up its attach on the recession the days until we start to see a recovery will come sooner than many economists predicted.

Last fall the Central Bank held $900 billion on its balance sheet and just prior to this announcement it was sitting at $2 trillion which proved the strong measures that the Fed is prepared to take to get the economy back on track.

More from the NY Times:

Fed officials have said they hope to expand the program next month, possibly to include the huge market for commercial mortgages, and both the Fed and Treasury hope the program will eventually provide up to $1 trillion in total financing.

So what does all this mean? Well for starters, it is expected that the Financial Institutions will be able to write more loans for people to buy more products to put more people to work so they can buy more and get more loans.and so on.

The biggest question is how will the process get started? We all know that companies are not going to hire with the expectation of future orders, and consumers are not going to start buying until they know they have jobs to cover the bills they createbut someone has to go first. Any volunteers?

The US and Canadian Governments need to start buying more since they are the ones with the money. One they get the orders in then the suppliers will start hiring and the people that are hired will start buying so the suppliers will start hiring and so on

Since we are seeing such bold moves on the available funds, I am certain they are gearing up to do just that. Get the money ready and then start buying.

So the next hurdle will be for companies to get the financing they need to accept these orders. Even with the abundance of funds for companies, many companies will not qualify for bank loans due to their financials over the last couple of year.

Now is the time to sit down with a Professional Commercial Finance Broker as they will have far more financial products available to them than the banks have so you can actually accept the orders that come in and be able to produce them.

My prediction is that Accounts Receivable Factoring and Purchase Order Finance will play a huge role in our immediate economy so it will not be a bad idea to get set up for it so you are not scrambling to find a funder.

You need to keep a scorecard to keep up with the AIG issues in regards to the finance practices that are in question, that the US Taxpayers are ultimately responsible for.

The latest item was announced Sunday March 15, 2009 on the NY Times:

WASHINGTON ” The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.

AIG defenders stated that these payouts are required because the contracts were drawn up prior to the financial collapse of AIG and that the government is not about to renege on contracts as this would lead to legal issues Here is a question for you, had we not bailed them out, what would have happened to the contracts then? Would they not have been voided out? Maybe these types of contracts are the reason AIG is in such terrible shape to begin with

Seems like dj vu doesnt it? Remember the Sub-Prime Mortgage meltdown that happened a couple of years agodid we learn anything from that at all?

Regardless of the fact there were these pre-existing contracts there are circumstances where these contracts still need to be revisedcollapse of the company is one of them. Even the automotive industry is renegotiating with the workers and suppliers, what makes AIG so special that they do not fall under the same reality as the rest of the world? I am not saying that when it become inconvenient for us to honor a contract that we should have an easy out, but there is a time and place when this needs to happen. After all, any Angel Investor that looks at a company to decide to whether or not to invest will look at the current obligations in order to determine as to whether they want to invest or notapparently that part of the deal was missed otherwise we would not be talking about this.

There needs to be some changes to the policies in place with the AIG deal, if this is a loan, then there are covenants that should have capped the payments to the Executives and if the AIG is looked upon as an Investment, majority shareholders can make changes to policy. If these contracts should have been a point of negation prior to any funding. I understand that the bonuses are in place to keep top producers on, I get that, but there are many top producers that have taken pay cuts too. Perhaps the negotiation skills of the people that put the deal together should be reviewed as is seems as though the deal is not in the best interest of the American public.

There are so many financing alternatives today that are offered by Commercial Finance Brokers as they access to funds for Accounts Receivable Financing, Export Factoring, Purchase Order Finance, Commercial Equipment Loans and Commercial Real Estate Mortgages. Be sure to do you checking around into the various options available to you as there is a loan available for most circumstances if you have the right Finance Broker.