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USC Marshall School of Business: Stephen Perl, CEO PMF Bancorp presents alternative business financing – Fin-tech to Crowdfunding

USC Marshall School of Business: Stephen Perl, CEO PMF Bancorp presents alternative business financing -Fin-tech to Crowdfunding from stephen perl on Vimeo.

Canton Fair 2016 event in Downtown Los Angeles

city-clubOn June 8th, the Canton Fair and PMF Bancorp will be hosting an intimate breakfast event at the City Club in Downtown Los Angeles so that local C-level executives looking to enhance their relations with China will be able to meet with the Canton Fair officials and learn more about their platform.

If large multinational companies like Honeywell, Cannonsafe, Exotica, Caterpillar, Arthur Schuman Inc are attending and showing their products at the Canton Fair on a regular basis to enhance their business, then there is a reason to learn more about this platform….

Please save the date for June 8th for breakfast and networking with the Canton Fair officials as well as other trade officials and associations at the City Club.

All attendees must receive a confirmation email after RSVPing. Space is limited and applicable businesses and trade associations will have priority.

For more information on the Canton Fair and their next show in Guangzhou, China in October, please visit their site.

Look forward to meeting at the City Club.

Please fill out this form to request a reservation and we will get in touch with you shortly.

Canton Fair 2016

Please fill out this form to request a reservation and we will get in touch with you shortly.
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7 Ways to Better Manage Your Cash Flow when Selling to Larger Customers….

Manager-In-Warehouse-Checking-BoxesThere are many ways to improve your cash flow, but how and who you sell may be the most important way you can control your cash flow. We all know and love those clients that pay COD, but they are far and few between. The reality is that larger customers in the US almost always take commercial terms (i.e. 30 to 90 payment terms). When selling to larger customers, many feel they are forced to take anything they are offered, but there are ways to get paid faster and better control your cash flow….

  1. Negotiate Vendor Agreement(s) – Even if your large customer says their terms are 60 days without exception, there still can be items that they can do to assist your company with its cash flow. They can often add a clause for early payments such as a 2% discount for a payment within a 10 day term…however, bringing your own independent financing through a factoring company can often save you a lot of money and provide more flexibility.
  2. Negotiate Terms of Delivery with Larger Customers – Better logistics equal better cash flow. For example, if you can have the larger customer pickup FOB China, then your billing can start sooner and a 60 day term can feel more like 30 days because you are not carrying the product as inventory. Often, using larger customers’ logistics can also save you money and time.
  3. Better Logistics Equates to Better Financing – When a business has better financing, it has better cash flow by default (in most cases). Logistics that is fast and without long holding periods for inventory is easier to finance. If you think of your inventory as a “Hot Potato” and hold it as little as possible, you will find better financing, profitability, and cash flow.
  4. Make Deals with Suppliers – Chinese Suppliers are tough, but if you take the time to visit and build a relationship with your factory, they will most likely support your company with some terms after the first year if your business has been smooth. Suppliers can be a great source of extra credit and relive strains on your cash flow, especially when selling to larger customers.
  5. Selling Smart – When selling to a large customer, we all dream of the big orders. These orders can just as easily become a dream as a nightmare. Start by selling small amounts by selling regions of retailers or via their online presence before rolling your product to all their stores. Even though buyers are looking for margin and product wins…you need to be able to win too. Sell smart.
  6. Visit Your Buyers – Good communications with you buyer(s) is essential and meeting up with your buyers for face to face meetings at least twice a year is even more important. This way you can establish a real connection and credibility that you are really working with them as a partner. They will, at least, feel motivated to give you a chance to compete if they are thinking of going with another vendor. Remember, without a real relationship, you are like the morning trash…ready to be taken out at any time.
  7. Get the Right Financing – Yes, we all think we should have a big credit line with the major bank across the street for at a half point over prime. Again, the faster you realize what financing is meant for your company, then the faster you can move on to selling and growing sales. Many small to medium size businesses need working capital to buy more products and to hire for staff…one does not need to beg a bank for a line to grow. Commercial lending banks that specialize in lending to businesses like PMF Bancorp can setup lines of credit, AR financing, trade financing and many other types of financing without the brain damage that the major banks cause. How? By looking at your good customer base and basing the line on the future sales growth and product, not past profits and tax returns which give little indication of future performance in many cases.

Understanding Key Elements in China & Opportunities for Factoring Companies in the New Pilot Economic Zones

Doing business in China takes both business and cultural knowledge.

Doing business in China takes both business and cultural knowledge.

After 14 years of working in China, one gets used to the fire drills that continuously go on with the Chinese government and their many circulars that are issued to the business community. One has to know that, when working with China, one has to be prepared to work in the grey area as nothing is perfectly clear or set in stone (not even for a multi-national as we saw with Google and others in recent years). This comment is not meant to scare off potential factors or investors in the region, as there are many opportunities for factoring companies in China, but to serve as a reality check that “You are not in Kansas anymore Dorothy,” if one chooses to pursue these opportunities.

To illustrate my point, in 2005, I had just set up 1st PMF Bancorp’s license to factor in China as one of the first private factoring companies in the country in a town near Shenzhen where I had a lot of guanxi (the term the Chinese use for relationship). Naturally, I was very excited and still relatively new to China with only a few years under my belt, and with the experience of having setup only one other company at that point in China. So I was very green. My first goal was to stop practicing in theory and to start financing in reality. After about six months, I found my first client, which is a whole other story unto itself (which is best discussed over a few stiff drinks) While I was working on some client requests from our office in Shenzhen, I heard the fax go off. I did not pay any attention until I realized it was news of a new circular that had just been issued by our friends at the Shenzhen Ministry of Commerce (aka MOFCOM) which is the official body regulating non-bank factoring companies (every region has their semi-autonomous offices of MOFCOM that reports to the head office in Beijing) The MOFCOM Circular stated that it was now illegal to take assignment of invoices! Wow, so now I was basically out of business…to say the least, I was beside myself and as any good factor does when they get in trouble, I called my lawyer. After days of talking with my lawyer and friends in the finance industry in China, our office gets another fax. At this point, I am afraid to even look at anything that is coming out of that machine. To my surprise, the MOFCOM altered or basically annulled their circular with another circular, so I was back in business. This was my first big lesson that China was a very fluid business environment, not always moving forward in straight lines. Having lived in China, I’ve found that the Chinese do not move from point A to point B as Americans are accustomed. Their movement towards a goal is best described as circuitous…this is the culture. I speak quite often on China business and I always warn that my business tips and knowledge are almost meaningless in the hands of a person that does not understand the Chinese culture. So I am going to preface the following new opportunities in a half-joking manner by stating: the information you are about to read should only be re-enacted or practiced by a trained professional (with deep resources in China).

With all that said, there are great opportunities happening in the New Pilot Economic Zones in China. Many of us are familiar with the economic miracle of Shenzhen, where the Chinese anointed the mainland area adjacent to Hong Kong with a unique city charter granting almost complete economic freedom (except for free foreign currency exchange) in the early 1980s. From this experiment, we witnessed a business economic empire rise from farmland which, now, even rivals Hong Kong.

The latest economic experiments are in the newly formed financial districts in Shanghai and Shenzhen called Shanghai Pilot Free Trade Zone and Qianhai Development District, respectively (investing in the real-estate in these areas, early on, would have been our best play). These areas are quite small so there is no space for anything extravagant, just branch offices. In fact, the Shanghai New Economic zone is only 29 square meters, located near the Pudong International Airport where much of the land is reclaimed. The Chinese government has set up these zones to meet focused goals of the Chinese economy through small steps. The Chinese government’s goals are to test a freely trading currency in small areas (to limit any potential negative impact on the overall economy) while also promoting businesses in 18 service areas with a primary focus on financial services. The Chinese government’s intent is to focus on these zones to create economic hubs of freely traded RMB (the Chinese currency’s official name in China) to compete with other nearby countries and/or economic hubs. The Chinese government is determined to attract the many multi-nationals, that currently prefer to have their base of Asia operations in Singapore or Hong Kong, to these new Chinese economic zones where they will now enjoy free currency exchange for their RMB and other international currencies.

These new Free Trade Zones present a myriad of future opportunities, but many of their functions have not been clearly defined yet (i.e. how RMB currency is to be traded, in what quantities, by whom, etc.) The details are still developing. Of the main multi-national banks, only Citibank and DBS have set up small offices with licenses for the Shanghai new economic zone, as many of their rivals are most likely waiting for more definite guidelines to be set before fully committing.
So how do these new areas present opportunities for a factoring company? Well, in 2012, the Ministry of Commerce (MOFCOM) approved Tianjin and Shanghai for foreigners to start their own factoring companies or own a portion as a joint venture, so no new opportunities have happened in terms of full licensing. One could license a factoring company prior to 2012, but the guidelines were mostly in the grey area and one would have to have solid relationships with the local government in order to operate successfully. The regional MOFCOMs are really the oversight entities for non-bank factoring companies whereas the China Bank Regulation Commission (aka the CBRC) regulates traditional banking institutions, including those with factoring units.

When starting a factoring company in one of these three new economic zones, post 2012, the amount of paid in capital required for a factoring company is approximately $8 to $10 million USD (based on direct inquiries to MOFCOM by my offices). Most US businessmen are unfamiliar with the “paid in capital” concept practiced in China which requires all new businesses to show the required legal amount to start a business in the bank for 15 or 30 days before an actual license is issued. This requirement is extra strict for financial companies, especially foreign owned financial companies. Today, there has been more than 300 factoring business licenses granted (according to direct inquiries to MOFCOM by my office), but few of these companies are actually operating as a factoring company. One thing a business person working in China learns is that when there is a new opportunity in China, the masses flood to get a piece of the action without even knowing what they are actually getting involved in. The Shanghai New Economic Zone is a perfect example: as of the end of last year, there were over 500 inquiries per day (based on the official report via the China Daily – Nov. 18, 2013) to setup new businesses in the zone. These inquiries mostly revolved around setting up less capital intensive industries; such as travel agencies, HR, information related services, etc. However, the Chinese have always been drawn to quick profits (and are quite adverse, in most cases, to long term investments) so many of the investment rushes in China are driven by the masses acting on news, not well thought out business plans.

So starting a factoring company is easy now, if one has approximately $10 million USD in free capital to let sit in a Chinese bank until the right business opportunities are found in order to deploy the funds. But with the new economic zones, there are possibilities of freely sending the money outside of China when the money is not being used, which makes the proposition of starting a factoring company better than before (seeing that that the money can be used both inside and out of China) Unfortunately, the directives from Beijing as well as the local government in charge of running the new economic zones have not been clearly issued on how the zones will be working. There are only general guidelines and even these have changed. Like everything else in China, this will take time to evolve. But it is all moving forward, just not from point A to point B as we are accustomed.

To make things a little more complicated in taking advantage of these opportunities, there is no secret that China’s commercial laws are still very nascent and their judicial system even more so. Any seasoned factor knows that you need both of these areas of government to be operating efficiently in order to grow safely. Even though a factoring license allows one to work nationwide in China, the governments are still very regional and finding yourself as a corporation from a different province taking legal action against a local company can be hard, and even more difficult if you are a foreign-owned company. “There is however still an important need for the improvement of the general legal environment for assignment and insolvency laws. And most importantly there is a huge need for training and consulting. Today it seems to me that sometimes companies are set up as factoring companies without any knowledge about the basic principles of factoring nor a well prepared business plan in China,” states Erik Timmermans, the Secretary-General for the International Factors Group.

Best practices now are to stick to the major, well developed provinces near the new economic zones when financing a company in China, as the court system and local MOFCOM will be much more mature than many of the other provinces that still have probably 10 years of catching up to do.

“Undoubtedly, there are great opportunities for a serious factoring sector in China, and the SME sector is desperately waiting for new financial services like factoring, but only those commercial factors will succeed who start with the right amount of appropriate expertise,” states Jeroen Kohnstamm, the former Factors Chain International Secretary-General.

Where will factoring go in the next 10 years in China and will there be opportunities? Naturally, factoring will mature in the next 10 years in the format we understand it to be, and of course, there will be many opportunities. But taking time to understand the culture and the terrain in China should be the first steps to successfully understanding China and taking advantage of the opportunities in the region, especially in the new economic zones in the near to mid-term.

Stephen Perl, MBA, MS
CEO of 1st PMF Bancorp
Author: The Secrets of Dancing with the Dragon: Doing Business with China (2012)

Importer Financing & Factoring Opportunities

U.S. importers have been filling the void for many of the products that the U.S. buyers continue to demand with their dollars, and this has presented a niche for new kinds of financing opportunities such as factoring invoices and trade financing.  An interesting side note is that if U.S. buyers just bought $300 more of U.S. products per year, our deficit and manufacturing flight would be solved.

Niche financing for importers has always been around for the large, credit worthy companies in the U.S., but now small businesses can get access to this financing as well.  Letters of Credit have been used by banks for a long time, but a few factoring companies are now becoming experienced at designing trade finance programs for smaller companies, and not just at factoring invoices.

How can a trade finance program help your company grow?  Being able to order larger amounts that the larger US customers are demanding is essential, but cashflow is sometimes restrictive.  Also, sending deposits, without the protection of a letter of credit or a structured purchase, is a dangerous habit as well because there is nothing holding the foreign supplier to making the right quantities, making the delivery dates or other parameters important to your company.

1st PMF Bancorp has been a commercial lender with a specialization in trade finance and factoring invoices for over 30 years.  When you are a small company. having a lender that understands and can be flexible to meet your needs makes all the difference when achieving company’s sale goals.