Some banks have honored the IOUs, but a number of large banks have stated that they will no longer honor them as of the end of today, July 10, 2009.
Since many small companies must have the cash to operate, some are turning to desperate measures to turn the IOUs into cash. Buyers on Craigslist and E-bay are offering to buy these IOUs for 75 cents on the dollar.
There is another option. If your company is receiving or could receive California IOUs, you will likely be able to find a factoring company who will finance the accounts receivable during the period until the California IOUs can be cashed in. Factoring has been used successfully in similar periods of governmental budget meltdown. During the end of FY 2005, the federal government could not pay its vendors between October 1 and about December 15. Commercial factoring companies stepped in and financed payroll and materials for the 75 days of the stalemate. Instead of giving up 25% of the amount owed, companies paid factoring companies between 3% to 6% depending on the size of the receivable and the type of service or goods being delivered.
If you do decide to turn to factoring and you expect that the need will only exist as long a as
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
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