subject: Will Wal Mart Help Or Hurt Invoice Factoring? [print this page] News that Wal Mart is getting into the invoice factoring business sent shockwaves throughout the industry, but now that the dust is settled, it begs the question: Will the world's largest retailer hurt or help the industry?
It could do a little bit of both.
Even though invoice factoring has existed for hundreds of years, it is still dwarfed by traditional forms of financing such as bank loans. Wal Mart gives the industry the boost of credibility and legitimacy it needs.
A Retail Giant In Invoice Factoring
Businesses may be more receptive knowing that a large company like Wal Mart is in the industry. The Wal Mart brand name could make invoice factoring more appealing to businesses, who might have otherwise never thought about it as a funding option.
Wal-Mart plans to offer about 1,000 of its suppliers the opportunity to participate in its Supplier Alliance program, according to a story in the Wall Street Journal.
The program will allow suppliers to receive payment for their orders in 10 to 15 days as opposed to the traditional 60 to 90 days.
It would allow suppliers to sell their invoices to Wal Mart's partner banks, Wells Fargo and Citibank. The banks would offer interest rates tosuppliers based on Wal Mart's credit rating and the banks would collect payment from the retailer.
Wal Mart's foray into invoice factoring follows the Chapter 11 bankruptcy protection filing of invoice factoring giant CIT Group Inc. earlier this month.
Will Wal-Mart Corner The Invoice Factoring Industry?
The program is small for now, but some are worried that Wal Mart might use its retail power -- it is the largest retailer in the country -- to dominate the factoring industry.
The concern: Wal Mart's AA credit rating is particularily attractive to suppliers, who will most likely get lower rates with Wal Mart than they'll get elsewhere.
Only time will tell the effect Wal Mart will have on invoice factoring. Many companies have a gutteral reaction any time they hear the world Wal Mart because it conjures up images of a big retail giant competing with the small mom and pop shops.
For now, at least, Wal Mart is only concerned with its suppliers. It's not actively pursuing the factoring industry as a business. It's merely making a tough situation easier -- and of course it stands to make a profit.
When it reorgnanizes, CIT will still probably be the largest factoring company in the country -- Wal Mart or not.
Wal Mart isn't cornering the industry by offering factoring to its suppliers. Their suppliers are only eligible for faactoring for their Wal Mart business -- not dealings with other retailers.
Deals retailers have with suppliers outside of Wal Mart would still qualify them for factoring from a third-party. Wal Mart won't hurt the industry. If anything, it will help it by making it become more competitive.
