American Factoring Association Protests AICPA Proposal

The American Factoring Association, the sole body representing the factoring industry in Washington, D.C., wrote to Steven T. Mnuchin, U.S. Treasury secretary, and Jerome H. Powell, chairman of the Federal Reserve, to state its opposition to a proposal to create a federal program to purchase accounts receivables in the private sector. The AICPA, a CPA trade association, recently proposed the creation of such a program.

The proposal read, in part, “AICPA recommends that the Federal Reserve, with approval from the Treasury Department, create a federally-backed short-term accounts receivable lending facility that would allow companies to pledge their future receivables in order to create immediate cash flow through a 90 to 180-day lending arrangement with the federal government.”

“Our stance is that there is an entire industry — factoring — whose purpose is to purchase accounts receivable,” Bert Goldberg, Executive Director of the AFA, said. “In fact, an internal Treasury study stated that roughly 6% of all trade receivables are purchased by factors. The AFA wants to assure businesses that factoring companies remain ready and willing to purchase accounts receivable and provide needed cash flow to help sellers of such accounts through the challenges posed by the pandemic.”

In the AFA letter to Mnuchin, Goldberg also pointed out the misleading term “future receivables” used in the AICPA letter proposing the program. The AFA letter questions whether the AICPA proposal was intended to turn the federal government into a de facto MCA lender. “MCAs use this language in order to lend money at extremely high rates of interest,” Goldberg wrote.

“We already offer businesses a path to short-term liquidity, and businesses like factoring because they have access to cash flow at reasonable costs,” Goldberg explained. “Factors can be especially helpful in these uncertain times, as many businesses are building cash balances and delaying payments of accounts receivable. Factoring is also an excellent short-term funding solution as businesses wait for PPP and EIDL monies. In addition, factors focus on the financial soundness of a business’s customers, not the business’s balance sheet, so firms with insufficient credit history may be able to get funding.”

The AFA provides a single voice for commercial factors and lobbies on behalf of members to ensure equal opportunity and fair treatment.