A How To Guide For Factoring Brokers
November 7, 2011 by Don DAmbrosio
About a month ago, I posted a discussion on LinkedIn about how to become a factoring broker or consultant in the invoice factoring industry. Specifically, we put together a guide for new and current brokers titled, “Guide to Wholesale Factoring.”
The guide contains information on industry related topics including, benefits of factoring, factoring vs. bank financing, sample transactions, targeted industries, qualifying prospects, overcoming objections and more.
The response was absolutely overwhelming!
Within a day of entering the post, we received requests from brokers in the United States, Canada, Mexico, Great Britain, Slovenia, New Zealand, China, Saudi Arabia, Africa, and China. I was floored that so many people from around the globe knew what factoring was and wanted to learn how to participate in the industry.
For those of you that missed our guide and are interested in learning more about brokering or just the factoring industry in general, here are a few key points that we feel you might find useful.
Factoring refers to an arrangement whereby a factor purchases an account(s) receivable from a business at a discount to the face value of that receivable. The factor earns a fee based on the number of days that the receivable remains unpaid, i.e., the longer the receivable remains unpaid, the larger the fee incurred.
Effectively, the business is no longer dependent on the conversion of accounts receivable to cash from the actual payment from their customers, which takes place on typical 30 to 90 day terms. Businesses benefit from the acceleration of cash flow.
Today, the most common form of factoring fits conveniently in your wallet – the credit card. Each time a merchant accepts a credit card, the merchant (seller of the goods) is giving up a portion of the total sale to the card issuer (typically a bank) who in turn, eventually collects from the consumer.
Benefits of Factoring Invoices
Any company, whether starting out, experiencing a growth phase, or mature in years needs good cash flow. When a business sells a product or service to a customer, that business provides an invoice stating the products or services sold and the amount the customer has agreed to pay. It is an IOU from the customer to the business. Sometimes these invoices are paid immediately but quite often they are paid anywhere from 7 to 120 days.
There are a number of benefits derived from the use of factoring:
- Immediate Access to Cash
- Take Advantage of Early Payment Discounts
- Eliminate Overhead and Invoice Processing Expenses
- Build Your Credit Rating
- No Liability on your Balance Sheet
Advantages of Invoice Factoring vs. Bank Financing
Factoring is not a “loan” – it is the sale of an asset.
A loan places a debt on a balance sheet, and it costs interest. By contrast, factoring puts money in the bank without creating any obligation to pay it back. Thus having more cash on hand and fewer receivables strengthens one’s balance sheet.
Loans are largely dependent on the borrower’s financial soundness. With factoring, it is the soundness of the client’s customer that matters most – a real plus for new businesses without an established track record.
These are just a few key points that are covered in our “Guide to Wholesale Factoring. For those new to the factoring industry there are many associations, professionals and publications that provide educational guidance and useful information about the factoring industry.
While you’re at it, check out this publication for great insight from professionals giving you their perspectives and experiences on a wide range of factoring topics. This is a great time to get involved in the factoring industry with many resources available to new brokers.
Don D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California or online at www.oxygenfunding.com.
For a complimentary copy of his How To Guide for Factoring Brokers and to register as a broker please email firstname.lastname@example.org.