Reaching deeper into the small-business market, Founders Bank of Arizona, Scottsdale, began offering accounts-receivable financing last month.

"Hopefully these are clients that will grow into conventional bank customers," said Julian Fruhling, president and chief executive officer of $123 million-asset Founders Bank.

Founders Bank isn't alone in its decision to offer factoring. Aided by new computer software that tracks accounts receivables, more community banks are offering factoring to build early ties to businesses with little collateral.

Accounts receivable financing, or factoring, was traditionally offered by finance companies to small-businesses that couldn't qualify for conventional bank financing.

The businesses sell their accounts receivable as a form of short-term financing, and the lender collects directly from the small-business' customers.

About 1,000 community banks are using the Business Manager software from Tennessee-based Private Business Inc., a company spokesman said.

Private Business also helps banks identify accounts-receivable financing prospects in their area and provides a marketing specialist to explain the product to small-business owners.

The Business Manager software is one of 21 banking products from 14 companies that carries a seal of endorsement from the American Bankers Association. Two groups of bankers review a product and examine a company's financial history, sales strategy, and management before they endorse it, an ABA spokeswoman said.

Mr. Fruhling said the software helps the bank track invoices and create customer statements that would otherwise be too labor-intensive to be profitable.

Accounts financing is typically used by customers who are considered to be higher risk. Mr. Fruhling said all the deals go through an underwriting process similar to the one used for conventional business loans.

But Thomas Cross, president of Michigan-based Crestmark Bank, which specializes in factoring and asset-based lending, said the software attracts some banks to a business they do not understand.

"Banks don't have factoring expertise," Mr. Cross said. "I don't think it makes sense for a financial institution to use a program to get into a business if they don't understand where the risks are."

Allen Pruitt, executive vice president for lending at Security State Bank of Abeleine, Tex., said his staff members understand the product but need help promoting it.

"If I just sent my loan officers out to explain this complicated program, something would get lost in the translation," he said. "They tend to be generalists and they are not typically marketing people."

Security State Bank financed accounts receivable for 25 rapidly growing businesses that needed more capital than the bank could offer through traditional credit lines, Mr. Pruitt said.

Mr. Cross said increased competition has driven prices down and led some lenders to make riskier deals than they would have a few years ago.

"It's just a much more aggressive marketplace with the risks and the rates that people are willing to take on," he said.

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