Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Spots who wrote (17419)	2/14/1998 11:50:00 AM
From: Resry	Read Replies (3) \| Respond to of 97611

RE: Factoring If there was considerable risk, the factor would not accept the receivables. Typically, factoring is done to improve cash flow, and to rely on the factor for the credit worthiness of customers. I am in an industry where factoring is the norm. In a nutshell it works like this. -CPQ submits order to factor. -Factor approves credit. -CPQ ships and assigns receivable to factor. -CPQ may borrow up to 80% of receivable at negotiated rate (some relationship to prime). They don't have to borrow. -Factor is responsible if customer doesn't pay, unless customer claims defect or some other dispute. -Upon payment the loan is reduced automatically. -If customer does not pay within 90 days of due date, factor eats the receivable. -CPQ will pay a % of the total receivables factored as a fee. In my small business, we pay 2% over prime for the loan, and a 1% fee. A company the size of compaq would pay substantially less. With CPQ's huge cash position and borrowing capability, unless they are getting a superb rate (doubtful that it would be better than com'l paper), it seems the main function of the factor would be for checking the credit worthiness of their customers.

To: Spots who wrote (17419)	2/14/1998 11:57:00 AM
From: Mohan Marette	Respond to of 97611

Spots: You do raise an interesting point but I think the % will depend on the quality of the receivables and the amount involved.Assuming CPQ rather have the cash and the quality remains high it might be possible for them to Factor the receivable at a very low %. I think you already mentioned it in your post, I guess I am just repeating what you just said.

To: Spots who wrote (17419)	2/14/1998 9:38:00 PM
From: Obewon	Read Replies (1) \| Respond to of 97611

Spots - The 97-98% cash now WAS an estimate on my part. I developed the estimate based on my belief that CPQ could "sell" its receivables for better than average rates due to the huge volume. The factor who buys the A/R is likely to be the first approached next time around CPQ wants to hedge its risk. Since factors work on volume, I felt they would give a CPQ a better than normal deal inorder to capture business down the road. Thanks to everyone else who posted exactly how the factoring process works. It's one of those things that comes out on SI which you'd rarely be able to find out without extensive industry research but certainly help investors make informed decisions. OB