The gulf war was in full swing, business was piling up an Carol M. Highsmith had had enough.
For about 10 years, the commercial photographer had run her own business, sending out bills, waiting for payment and sending out the bills again. Although her clients included major corporations, she would sometimes wait months to be paid.
But when war came and economic uncertainty translated into even later payments from clients, Ms. Highsmith threw in the towel. She turned to one of a growing number of firms offering quick cash for accounts receivable, or the income expected -- but not yet received -- from customer invoices.
What Ms. Highsmith discovered was a business technique known as factoring. By selling her accounts receivable, she was able to pass along the responsibility, paperwork and headaches of collecting the payments in exchange for a hefty cut of her profits -- a trade, she says, that is worth the expense.
"I just decided it probably wouldn't be a bad idea to stop worrying about collecting all the time, to sell my receivables and just move on and concentrate on other things," Ms. Highsmith, co-author of photography books about Union Station, Pennsylvania Avenue and the embassies of Washington.
Long used in the textile trade, factoring is increasingly making the shift away from the manufacturing trades to the service sector. Factoring companies catering to specific niches -- start-up firms, physicians or other groups not traditionally sought after by factors -- are popping up throughout the country, said Bruce H. Jones, a spokesman for the Commercial Finance Association, a New York trade group representing factors and other asset-based lenders.
"Especially in Texas, where they went through some hard times, we see a tremendous growth in small factors," Mr. Jones said, adding that the same has been true recently in hard-hit regions of the East Coast as well.
Factoring is divided between two basic concepts. One provides a long-term technique for routinely disposing of invoices by passing along these receivables to such large factors as those owned by Heller Financial Inc., the Bank of New York and the CIT Group, which is co-owned by Dai-Ichi Kangyo Bank and Manufacturers Hanover Corp.
These three companies, accounting for more than one-third of the $50-billion-a-year industry, according to Mr. Jones, serve major corporations that have used factors for years.
The growth in the business, however, has occurred primarily at the other end of the spectrum -- in companies whose primary assets are their billings rather than fixed assets such as manufacturing equipment.
Business Funding Group Inc., the Boston-based company to which Ms. Highsmith turned, has doubled its business annually since it was formed in 1986. It has done so by targeting companies with less than $5 million in revenue, said Roger J. Lodesky, chief executive of Business Funding. The company opened a branch in Oxon Hill to serve the Washington-Baltimore area in March. The privately held company declined to disclose revenues.
According to Phillip L. McFadden, vice president of Business Funding for this region, and others in the industry, factors typically pay 70 percent to 80 percent of the value of a portfolio of receivables in an up-front cash advance.
Roughly 4 percent to 9 percent of the amount of the receivables beyond that amount is kept by the factor through servicing fees, a percentage of the amount collected or a combination of the two. Funds collected beyond that amount are then sent on to the company that hired the factor.
The amount charged by the factor depends on the riskiness inherent in collecting the billings and the length of time it takes for the money to come in. Some factors will hold customers liable if the first 70 percent is uncollectible, while others assume the risk themselves.
Lending money to companies or firms with little more than paper assets is a tactic recently used by MasterCare Services Inc. in Lutherville, which arranges loans to physician groups using their accounts receivables as collateral rather than personal guarantees by the doctors.
"Maybe it's just a down computer system at Medicare, but that physician has done the work," said Ed Zimmerman, president of MasterCare. "He is totally at their discretion as to when they pay. The receivables are good but the timing is like a yo-yo."
But Mr. Zimmerman and many consultants agree that factoring is not a preferred way to run a typical business.
"Factoring is an expensive proposition," said Robert S. Permison, an partner at the Baltimore accounting firm of Kamanitz, Uhlfelder & Permison. "It's usually substantially higher than bank borrowing."
For Ms. Highsmith, however, the technique has worked out well, she said.
"During January, February, March of this year, there was no way -- no matter what you had -- you were going to get a loan" from a bank, she said. "This is based on real money, this is based on money I've earned and I think it's a better deal."