How to Generate Business in a Down Economy

11:19 30 January in Blog

Even during an economic downturn, your business can generate revenues and experience growth.  While some businesses struggle as the economy drops, those with a plan can thrive and position themselves to capture market share. 

When the market fluctuates, your business practices need to adjust with it. Here are a few things you can be doing to prepare and increase your staying power.

Preparing for a Recession

The key to growing your business during periods of economic uncertainty is all about preparedness and cash flow management.  If you think an economic downturn or recession is likely in the near future, start to take action to minimize the impact on your business as soon as you can. Preparations that will help your business weather a down economy include:

Accelerate Cash Flow

Use electronic invoicing to speed up the cash conversion cycle if you have not already done so. Provide more ways for customers to pay on time with credit cards, electronic funds transfers (EFTs), and fintech payment processors like PayPal and Google Pay, in addition to payment by check. Offer customers cash discounts for early payment. Review payment terms and eliminate extended terms if possible. Negotiate payment plans with past-due accounts.

Review Inventory Practices

Too much inventory in a business downturn ties up cash that will be needed to fund operations.

Bring days of inventory on hand in line with estimated sales requirements. Shorten your supply chains to reduce inventory levels. Reduce order quantities, and liquidate slow-moving and obsolete inventory for cash.

Manage Accounts Payable to Conserve Cash

Ask suppliers/ vendors for better payment terms. Discontinue paying early to earn cash discounts. Don’t pay your accounts payable any earlier than necessary. If necessary, stretch payments so long as it doesn’t negatively impact your relationship, trigger a credit hold, or affect your credit rating.

Reduce Expenses

Cut general and administrative expenses, but avoid making reductions to sales, marketing, and product program expenses. These programs are the link to your customers as well as the marketplace and your source of future growth.  By resisting the urge to make cuts in these areas, your business will be positioned to capitalize on the economic downturn and potentially scoop up market share left by competitors. Focus on core competencies and what is a necessity, not on what is nice to have. Protect key programs that are vital to your future and remember – cut fat, not bone.

Maintain Quality Standards

It is important you also maintain the quality of your products and services. Your customers expect the same level of quality regardless of your financial circumstances. This will help you to not lose your customer base because you went with cheaper suppliers. Maintaining sales volume is critical to cash flow and working capital management.

Protect Personal and Business Credit Ratings

Your personal and business credit ratings are very important for obtaining additional working capital facilities. If you and your business have good credit ratings, protect and maintain them. If your credit ratings are weak, review what can be done to improve them.

Work with an Invoice Factoring Company

You can also use an invoice factoring company to accelerate your cash flow.  Invoice factoring involves the conversion of your accounts receivable into immediate cash instead of waiting 60 days or more to be paid.  Adequate cash flow will allow you to maintain operations and provide business funding for programs to gain news customers or enter new markets. 

Increase Working Capital Facilities

Sufficient access to working capital and the right type of facility are critical.  Take steps as soon as possible to obtain the working capital your business will need.  Increase current limits on banking and other revolving lines of credit.  

Expand your working capital facilities with an accounts receivable factoring program and purchase order (PO) financing facility.  PO financing can be used to purchase inventory and supplies for new orders.  These programs are easier to obtain than a bank loan and they don’t reduce credit availability under existing credit facilities. Approval is based primarily on the creditworthiness of your customers, not the financial strength of your business. It will be more difficult to increase working capital facilities during a recessionary period, so it is better to act before a business slowdown accelerates.

Generating New Business in a Down Economy

Reducing expenses, accelerating cash flow, and increasing working capital are critical to weathering a business slowdown, but you also have to find ways to generate business to offset decreases in revenues. Here are some ideas for generating business in a down economy:

Existing Customers

Don’t forget about your current customers. Protect the business you have, and try to increase your share of customer business. Convince your customers that you should be their preferred source of goods or services. Keep in mind that if your business growth has stalled, your customer behavior may have changed so you will need to adapt with it.  Inquire with customers and see if there are any other products or services that you can offer to add value. Customer loyalty and consistent branding are valuable tools in retaining your credibility in the industry.  

New Markets

Strategize how you can expand your customer base and even pick up business from competitors. Your competitors may lack sufficient planning and be struggling during tough economic times.  If they have cut quality or reduced product/ service offerings this will become an opportunity for you to pick up market share.

If there is an international market for your business, review opportunities that would be a good fit. The growth of integrated logistics providers and assistance available from government agencies make it easier for small companies to tap into international markets. The defense industry and federal, state, and local governments use a vast array of products and services, and volume is often not impacted by the general economy. See what you need to do to become an approved supplier to these markets.

If you only do business in your local area or region, contact sales reps, state and local government agencies, and industry associations to see what would be necessary to expand your geographic footprint.

New Channels of Distribution

E-commerce has become a major B2B channel for manufacturers, wholesalers, and service providers to reach customers directly. If you have a limited web presence, consider developing an integrated internet strategy, including social media, to pull customers to your website, place orders directly, and communicate with your company.

Ease of Doing Business

Make it easier to do business with your company. Review your business terms and practices to see if there are things that can be changed to make it easier for existing and prospective customers to do business with your company. Consider reducing order minimums, improving freight terms, expanding office hours, improving communication channels, and upgrading your company website.

Marketing and Advertising

Typically one of the first things cut when money is tight is the marketing and advertising budget. Resist the urge to do this.  If you’re on a limited budget, get creative and find new ways to reach new customers.  Social media postings, email outreaches, your company’s website, and improving SEO are all cost effective ways that can all be utilized to help get your name out there and attract new customers. Keeping these channels open will allow you to be better positioned to scoop up market share that competitors may have left.

Bargain Shopping and Negotiations

Many vendors may be offering price concessions or willing to negotiate better rates/ terms while demand is low.  Bargain shop and take advantage of reduced costs.  This includes discounted rates for products and service offerings, commercial rents, deals on fixed assets and equipment, as well as hiring more qualified personnel that may have previously been out of your reach. Take the opportunity to upgrade and make improvements where possible as this can position you better in the long run.

When a business downturn is on the horizon, prepare early to protect cash flow and working capital. Reduce expenses and manage the components of working capital to minimize the possible effects on your business. Work with an invoice factoring company to accelerate cash flow and expand working capital facilities to weather the slowdown.

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Successful companies evolve when market fluctuations occur.  As a business owner, you can thrive during an economic downturn and take advantage of opportunities by preparing ahead and implementing the above strategies.  You will also avail yourself of more options when you are not operating in crisis mode and when the financial health of your business is at its strongest.   

No matter an economic slowdown or a full-fledged recession, Capstone is here to help you stay focused on what you do best – running your business.  We have the experience and resources to custom-tailor invoice factoring and P.O. financing programs for you.

 

Understanding Client Due Diligence

11:56 10 January in Blog, Broker Resources

A key component of being a successful financial broker or independent sales office (“ISO”) is understanding the process that prospective clients go through once you identify and refer a client to a factoring company. 

The process, known as due diligence, is key in qualifying a client for an invoice factoring program and continuing to fund a client’s working capital needs on an ongoing basis. Understanding this process will ensure due diligence requests are handled smoothly, thereby increasing the likelihood of the client being approved and also saving you time, and helping you close more transactions.

In this article, we’ll review what due diligence is, what it entails, and why it is important to brokers for new and existing client relationships.

What Is Due Diligence?

Due diligence is the term given to an investigation that provides reassurance that a financial transaction is fair and true before completion.  Due diligence in invoice factoring involves the review of prospective clients’ financial, legal and other relevant business information to determine if they meet the factoring company’s criteria for funding their working capital needs.

Due diligence can differ depending on the type of business funding required. Clients may have gone through other due diligence processes for business loans, real estate mortgages, or other types of financing. The due diligence process for invoice factoring is less complicated and time-consuming than the process for other forms of funding.  Prospective clients should understand this difference. It will help them overcome concerns they may have and make the process easier for everyone concerned.

What Does Due Diligence for Invoice Factoring Entail?

With invoice factoring, due diligence represents one of the most important preliminary steps before proceeding with a transaction.  There is no one size fits all approach for client due diligence so certain aspects of the process may vary depending on the amount of funding required, the client’s industry, the complexity of the transaction, and other associated risks.  

The process begins with a client submitting the documents requested by the factoring company, in this case, Capstone. The documents requested usually include the following:

  • Factoring application – The application should be filled out as much as possible, without errors, and include any additional forms with all necessary supplemental documentation to avoid delays
  • Legal documents – The documents should include business formation documents, information on incorporation, lawsuits the client is a party to, outstanding judgments, tax issues, and liens
  • Business owners – Information on individuals that own the business/ are officers of the company, including copies of driver’s licenses or other personal identification.
  • Business offices, warehouses, and manufacturing locations – Addresses, descriptions, and other relevant information
  • Accounts receivable and accounts payable aging reports
  • Customer list – Information on contacts, location, sales volume, and payment history. The credit history and background of customers are reviewed. Customer credit history and financial strength are key factors in determining whether a factoring program is approved
  • Copies of invoices to be factored
  • Copies of contracts or purchase orders to match the invoices – Including supporting backup, bonds, and shipping document samples
  • Other information – Depending on the client’s industry and the complexity of the transaction, this may include a professional license, proof of insurance, etc.

Upon receipt of the application packet, due diligence material, and due diligence fee, Capstone will begin legal documentation due diligence, account underwriting, and file a UCC-1 lien on the business. 

Company searches and background checks are done to look for issues that may be problematic and require additional steps to resolve. Accounts receivable liens, bankruptcy, tax issues, and legal problems are examples of items that may require further action to clear them so that a factoring program can move forward. 

Capstone will review the nature of the client’s business and transactions along with the customers that are served. The client’s invoices must be for B2B transactions with creditworthy entities in order to be eligible for factoring. A verification step is also performed on the invoice to confirm the validity of the account receivable.   

Certain types of transactions may also not be eligible for factoring, including sales that are contingent on the client’s customer reselling the merchandise or being paid for the product and guarantees to return unsold inventory. In these situations, agreements with customers will need to be revised for the invoices to be factored.

Due diligence can be completed in a few days or require a week or more. It all depends on the state of the client’s business is formed in, the complexity of the client’s business or industry, and how prompt the client is in providing complete information and responding to questions.

Importance of Due Diligence

Due diligence in invoice factoring is essential for several reasons. Determining upfront if a client is suitable for invoice factoring saves brokers/ISOs from wasting valuable time onboarding prospects that cannot be approved. It also reduces the likelihood that clients will have problems after approval, which may require additional attention beyond the normal demands of an invoice factoring relationship. Understanding what due diligence entails will increase the speed and efficiency of the process, which can improve the likelihood of the client being approved. This is especially important if the transaction or client’s need for business funding is time-sensitive.

Factoring companies rely on due diligence to avoid problems and financial losses from relationships with clients that are not suitable for invoice factoring. The due diligence process is not designed to be harmful to either the client or the factoring company. Negative information found is very often shared to give the client the opportunity to explain what happened.   

Due diligence helps identify red flags, prevents fraud, reduces the risk associated with the transactions, and also helps to keep factors financially healthy so they can continue to provide working capital funding to qualified businesses. Identifying problems and risks and devising solutions to these issues helps manage the risk involved.

Due Diligence Is an Ongoing Process 

Due diligence is part of the ongoing healthy factoring relationship with a client. After a client is approved for an invoice factoring program, circumstances may change. Economic recessions, natural disasters, geopolitical events, pandemics, and other factors can negatively impact a client’s business and financial health. 

Factoring companies use a number of resources to monitor a client relationship on an ongoing basis. Keeping track of clients helps to ensure a healthy factoring relationship and alert factors to situations that may require actions to help the client.

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Due diligence is an initial and ongoing process of reviewing a client’s financial, legal, and other critical business information to ensure a healthy factoring relationship.  As a factoring broker, your deal referrals will flow smoothly when you understand the deal submission steps and due diligence process.  Capstone has experienced personnel who will work with you and the prospective client to be sure the qualification, due diligence, and onboarding processes are handled professionally and efficiently every step of the way.  Please review our broker resources and give us a call at (212) 755-3636 to learn how we can help you close more deals.

Debt Factoring: What is it, and how can it help?

12:37 27 December in Blog, Business Funding

Debt factoring, also known as invoice factoring or accounts receivable factoring, is an alternative source of working capital funding. It is not a loan. Business owners sell their outstanding invoices to a third party known as a factoring company (“factor”) and receive an immediate advance as a percentage of the invoice amount.

Debt factoring is widely used by small and medium-sized companies to accelerate cash flow to pay operating expenses, pursue a growth opportunity, or purchase inventory and supplies to fill customer orders. Some companies decide to factor their accounts receivable because of a pressing financial obligation or when their customers require extended payment terms.  It is faster, more flexible, and easier to obtain than a loan.

How Debt Factoring Works

The debt factoring process is straightforward and easy for any size business to use.

  • You invoice your customer as usual for the goods or services rendered to that business.
  • You set up an account with the factoring company of your choice.
  • The outstanding invoices/ progress payments for work completed are submitted to the factoring company for verification with your customer.
  • The factor reviews the invoices and once verified/ approved, transfers an advance amount to your bank account.
  • The invoice amount is collected by the factor directly from your customer when due, which is usually 30 to 60 days.
  • The factor issues a rebate for the remaining invoice balance, less the factoring fee, to your bank account. 

Types of Factoring

Factoring can be a program to purchase all of your eligible accounts receivable, so you have continuous and reliable cash flow. The factoring company works with you and your customer to develop a seamless process that dovetails with your business model.

In some situations, single-invoice factoring, more commonly known as “spot factoring,” may be a better solution. This is particularly useful for business owners that have a reliable cash flow stream but occasionally have a large invoice that would disrupt cash flow if they needed to wait 60+ days for payment. In these cases, you can use factoring to convert a single invoice to cash to fill the gap in your cash flow. This is the ideal solutions for businesses simply in need of immediate cash.  There is no multi-year contract required.

The most common form of factoring is recourse factoring. Recourse factoring requires business owners to purchase back any non-performing accounts receivable. This means that your business is ultimately responsible for the payment of the customer invoices if they remain unpaid past their due date.

However, with non-recourse factoring, the factoring company assumes the credit risk and liability of non-payment on the factored invoice. Since the credit risk is borne by the factoring company advance rates may be lower and factor fees may be higher when compared to recourse factoring.

Regardless of the type of factoring you choose, there are a number of advantages that make it a better solution for working capital funding for many small and medium-sized businesses.

Advantages of Debt Factoring

There are a number of advantages to debt factoring that make it an excellent solution to fund working capital needs, including but are not limited to:

  • Accessibility to cash flow: When you utilize debt factoring, you have immediate access to business funding. You don’t have to wait 60+ days to be paid, and there is no need to chase customers for payment. Cash flow is available to pay for things such as operating expenses, a business growth opportunity, or for the purchase of inventory and supplies to fill customer orders.
  • Flexibility: Debt factoring is more flexible than other business funding solutions. Factoring programs can be custom tailored to fit your company’s business model.

Factoring companies work with you to dovetail transactions with your business processes. You don’t have to do work arounds to fit your business processes into a one-size-fits-all transaction.

  • Easier to obtain than loans: Loans can take weeks or even months to be approved and closed, and credit approval is based on your company’s financial strength and collateral. With debt factoring, credit approval is primarily based on your customer’s financial strength and credit history, instead of your company’s credit profile. As a result, the approval process is easier and faster than a loan.
  • Reduces the need to draw on existing credit facilities: Utilizing debt factoring instead of drawing down upon existing bank lines of credit or other credit facilities leaves them available to fund other working capital requirements.

Adding debt factoring to your mix of business funding resources expands available working capital funding, and avoids the need to increase existing credit facilities during a business downturn.

  • Makes it possible for you to pursue new business opportunities: With debt factoring you can pursue new business opportunities that might not otherwise be possible if a loan is required.

New business opportunities can arise at any time, even during a business downturn. Debt factoring can be used to quickly convert accounts receivable to cash to pay the operating expenses and buy the inventory and materials to fill a new order.

  • Can be combined with purchase order (PO) financing: Debt factoring can be combined with PO financing to provide seamless business funding of a transaction from the purchase of pre-sold inventory through the conversion of accounts receivable to cash.

You don’t have to wait to buy the inventory needed to fill and order. Instead, you can fund the purchase of inventory and pay for the inventory with proceeds from the customer’s invoice when the order has been delivered.

  • Reduces credit and collection costs: With debt factoring, you can reduce credit and collection costs. The factoring company follows up with your customer for payment, allowing you to conserve resources to grow your business.

It is important to understand that not all factoring options are alike.  Capstone knows that every business is unique with its challenges, and each deserves an individualized approach to solving their cash flow shortfalls. With flexible factoring structures, Capstone will customize a program specific to your business that will help you achieve your business goals. By utilizing debt factoring, you can shift your focus from waiting on cash to working on your next project without the stress of inconsistent cash flow.

The Impact of Fintech on Financial Brokers

17:03 12 December in Blog, Broker Resources

If you are a financial broker or ISO, fintech has undoubtedly shaped your brokerage’s business practices as more financial service providers incorporate new technologies to alter how they interact with clients as well as originate and fund transactions.

In this article, we’ll discuss what fintech is, where it is headed with new technology and applications, and the emerging challenges and opportunities on the horizon for financial brokers and ISOs.

What Is Fintech?

Financial technology (more commonly known as “Fintech”) is a catch-all term for technology used to automate, streamline, digitize or disrupt traditional financial services.

Fintech has been around for ages however it wasn’t until the 2000s that it really picked up momentum and, in the modern sense, came to refer to software, algorithms, and applications for devices connected to the internet, including computers, tablets, and smartphones. Fintech platforms facilitate day-to-day tasks such as routine banking transactions, money transfers, bill payments, and online trading of securities to name a few. Fintech also enables technically complex transactions, including online personal and business loans, mortgages, real estate purchases, and sales, peer-to-peer (P2P) lending, and cryptocurrency exchanges.

Electronic payments, money transfers, wealth management, loans, mortgages, real estate transactions, insurance, cryptocurrency, and many other financial transactions have been impacted by fintech. 

According to Ernst & Young’s latest Global Fintech Adoption Index, 64% of the world’s population was using fintech applications in 2019, up from 16% in 2016.  Fintech has leveraged software and hardware technology tools to reduce the time required to complete financial transactions and slashed cost, making them more accessible for vast numbers of individuals and businesses around the world.

The Future of Fintech

Fintech will continue to be driven by new and improved technology that will further accelerate the speed of financial transactions, increase efficiency, reduce processing costs, and improve client and customer experience.

Some developments on the horizon include:

  • Further digitization of financial transactions, particularly in the banking sector.
  • Use of blockchain technology in financial transactions.
  • Smart contracts which digitize contract signing, language, and execution of contract terms.
  • Additional use of artificial intelligence (AI) predictive capabilities in decision-making processes and automated suggestions to speed transactions and improve client and customer experience.
  • Peer-to-peer matching of users of financial products and services with financial sources.
  • Further use of cryptocurrencies in financial transactions.

These advances will pose challenges that financial brokers and ISOs must adapt to prosper in a rapidly evolving financial landscape.

Challenges for Financial Brokers and ISOs

Financial brokers and ISOs will face increased challenges from disintermediation, technology, and regulation as a result of fintech development. 

Disintermediation

Advances in fintech will continue to make it easier and less costly for financial service providers to go direct to clients and customers instead of through an intermediary.  This will gradually eat away at a broker’s client base and will leave some brokers scrambling to position themselves as the go-to intermediary.  Intermediaries may find they have to adjust their business practices by leveraging technology and catering to their clients’ changing needs and preferences to remain relevant. From chatbots and mobile apps for loans, to peer-to-peer crowdsourcing, many financial service companies are looking to connect directly with customers in new ways. These changing points of client contact are redefining the industry and increasing competition.

Technology

With significant technological changes within the financial services industry, there is no doubt a shift towards the use of digital platforms.  The rise of fintech technology is set to see brokers transforming themselves to match changing client expectations as clients expect faster service and faster products. Brokers will continue to play a role in financial transactions, however fintech may eventually eliminate their need as financial service providers incorporate these new technologies for originating and funding transactions.  The speed and efficiency of client applications have been accelerated by integrated software and AI tools that facilitate the underwriting process.  

Regulation

With the regulation of fintech increasing, brokers face the risk of being excluded from transactions or the additional costs and roadblocks will make them uncompetitive.

Despite these challenges, there are also opportunities for financial brokers and ISOs to continue to play an important role for financial service providers.

Opportunities within the New Competitive Landscape

In order to retain their role, financial brokers and ISOs will need to adapt to the new competitive landscape where change is the norm and they will need to coexist with financial sources to fill the niches where brokers can add value to transactions on a competitive basis. 

No matter the level of innovation and digital transformation brought about by fintech, there will always be the need for a human element.  Financial brokers can provide the human element that will be needed in some transactions to facilitate complex transactions involving subjective judgments and human interaction. 

The human element is key as brokers offer their clients piece of mind. Some clients fear new technology and are late adapters of fintech applications.  Financial brokers will be able to fill a niche by facilitating transactions that financial sources will not be equipped to handle.

Let us not forget fintech advances have enabled brokers to better serve clients, coordinate smoothly with financial service providers, increase business volume, improve efficiency, reduce costs, and efficiently operate their businesses.  With the increased efficiency brought about by fintech, financial brokers will also free up time to do what they do best – that is supporting their clients.  The ability for their brokerage to be more consultative and personal will be the driving factor in their success.  Financial brokers are and will remain an essential part of the fintech ecosystem.  

Partnering with Capstone

Advancements with fintech will continue to alter the competitive landscape for financial transactions. Financial brokers and ISOs will need to be flexible and willing to adapt, filling niches where they can add value to a transaction.

If you are a factoring broker or ISO and need a partner you can trust to help you remain competitive and build your business volume, now is a great opportunity to partner with Capstone! The support we offer factoring brokers speaks to our commitment to your success and we take care of those who refer business. 

What makes us different from so many other companies who offer commercial financing is we review each client’s assets, consider their resources, and when necessary combine them with our advanced logistics platform. Using all the tools at our disposal, our final goal is a positive client outcome. For you, this means more satisfied clients, and another avenue for successfully closing deals. As you close more deals, success follows.

Capstone is a leading commercial finance company that provides a range of financial products designed to meet the cash flow and working capital needs of nearly any type of business, including trade financing, invoice factoring, and PO financing.  Get in touch today at (212) 755-3636.

 

Strategies to Get Customers/Clients to Pay Invoices Faster

14:17 14 November in Blog

Do you want to improve your invoice collection process and get paid quicker? Small and medium-sized businesses depend on prompt payment from their customers/clients to support their working capital and cash flow needs.  They oftentimes lack the proper tools to effectively manage their accounts receivable which makes collecting on outstanding invoices difficult.

If your business is looking to accelerate the collection of your accounts receivable, there are several strategies you can use:

Review Credit Policies and Procedures

Credit policies and procedures may not address changes in the market and industry your business serves. Your payment terms may be too liberal or not competitive. Credit requirements for new customers may need to be adjusted. Credit reviews of existing customers must be performed periodically, and credit limits must be adjusted accordingly. Customers with past-due invoices may need to be contacted earlier and more frequently.

Credit policies and procedures should be reviewed with your accounts receivable personnel to ensure they understand them. Customers should receive a copy of your credit policies and payment terms periodically.

Know Your Customer and Evaluate Credit Criteria

The best defense against late payments or bad debts is to know your customer. During times of an economic downturn or recession, you’ll be able to better judge the credit risk a customer poses. Purchasing business credit reports from credit bureaus, such as Dun & Bradstreet, Experian, or Ansonia, are a good tool for evaluating credit risk and will typically include a monitoring feature for you to be notified if there are any fluctuations with a credit profile.   Additional credit information can be obtained by requesting trade/ bank references and financial statements from customers or even by simple internet searches.  Information for public businesses may be more accessible on the internet by using YAHOO Finance or EDGAR on the SEC.gov website, as these companies are required to submit public filings and financials.

Timely Invoicing and Automation

If you invoice manually, don’t batch and hold supporting documents until it is convenient to process them. Invoice the same day upon completion of a service, project, or fulfillment of an order.  Getting invoicing to your clients/ customers faster will allow them plenty of time to process payment within terms. Use invoice templates or invoicing software to expedite the process and reduce billing errors. The best practice, however, is to automate invoicing so there is no delay. Automation will accelerate the cash cycle helping you get paid faster and more efficiently.

Companies that automate their invoicing and collection processes reduce their Days Sales Outstanding (DSO) by up to 12 days. This means that, on average, customer payments are received up to 12 days faster with automation.  Lower DSO increases cash flow and reduces credit risk.  Utilizing an online customer portal will further reduce late payments.

Collection Procedures

Increased customer contact reduces late payments. Use automated email reminders and frequent calls to let customers know that you follow up for payment. Be polite but persistent. You are more likely to be paid before other suppliers that do not make frequent customer contact. On large orders, contact customers shortly after the invoice has been issued to make sure it has been received and there are no problems that will delay payment. Add a payment reminder just before the due date, and shorten the time between past-due payment reminders. In collections, the squeaky wheel gets the grease.

Resolve Disputes and Billing Errors Quickly

Disputes and billing errors are major sources of payment delays. Often businesses don’t become aware of them until an invoice is past due and the customer is contacted for payment. It can then take weeks to resolve the problem and receive payment. Whether the problem is due to a shipping error, quality issue, or invoice discrepancy, make it a priority to resolve the problem ASAP.

Discounts for Early Payment

Discounts for early payment are a good option to consider to accelerate cash flow.  If your standard terms are Net 30 Days, and you change to 1% 10 Days, Net 30 Days, the opportunity cost to your customer of not paying early to get the discount is an 18.2% return on the cash. Customers will often pay early to take the discount if they have the cash available. Make sure you have the profit margins to absorb the cost.

Payment Plans

Even the best customers can sometimes get behind on invoice payments. It’s better to be flexible and work with a customer on a payment plan than get no payment at all and lose future business. In some cases, businesses release a certain amount of orders for every payment received as long as current invoices are paid on time, e.g., $1,500 in orders released when a $1,000 payment is received.

Make It Easy for Customers to Pay

Offering multiple alternatives to pay invoices will accelerate customer payments. Increasingly, customers do not want to pay using paper checks because of the cost to process and mail, and their accounting processes are automated. Make it easy for them to pay you faster by accepting credit cards, fintech payment processors such as PayPal or Google Pay, ACH, e-checks, and other methods. Automated invoices also help by eliminating mailing and processing time, and a hyperlink can be included on an electronic invoice to facilitate faster payment.

Invoice Factoring

Invoice factoring is widely used by small and medium-sized companies to accelerate cash flow to fund operations or pursue growth opportunities. It involves selling your unpaid invoices for immediate cash to a third party, known as a ‘factoring company’ and can be provided for a single invoice or as a program for all of your accounts receivable.

Invoice factoring is fast and flexible, providing almost immediate cash flow from customer invoices. Invoice factoring is easier to obtain than a bank loan, and credit approval is based on your customer’s financial strength, not the creditworthiness of your business.  It’s an excellent solution for companies needing immediate funding for their accounts receivable.

How Capstone Can Help

Collecting your outstanding invoices is difficult, but it doesn’t have to be.  You work hard to generate the sales and deserve to be paid for it. With the inclusion of the above strategies into your invoice collections process, you will be able to accelerate cash flow and get paid faster.

Capstone is a leading commercial finance company that provides a range of financial products designed to meet the cash flow and working capital needs of nearly any type of business, including trade financing, invoice factoring, and PO financing. Contact Capstone to learn how invoice factoring can accelerate the conversion of your accounts receivable into immediate cash.

 

How Financial Brokers And ISOs Can Help Their Clients Recover From Natural Disasters

11:59 04 November in Blog, Broker Resources

In the aftermath of major earthquakes, hurricanes, and wildfires, the recovery process generally requires a well-coordinated response and partnership between insurers, governmental agencies, aid organizations, financial institutions, service providers, and businesses to help the people and businesses affected rebuild their homes, businesses, and lives.  The following is how financial brokers and ISOs can help in the recovery from natural disasters.

Economic Losses from Natural Disasters on the Rise

Global economic losses from natural disasters reached $270 billion in 2021 and, unfortunately, are only expected to increase.  Most recently, we witnessed the destructive power of Hurricane Ian, a catastrophic Category 4 storm that made landfall on September 28, 2022, with initial damage estimated between $41 billion and $70 billion. As of October 2022, 471,581 insurance claims have been filed, with 431,702 reported in Florida. Nearly two-thirds of the Florida claims are homeowner and business claims (272,465), and the remaining are personal automobile claims (151,892). Hurricane Ian was the 5th strongest hurricane to hit the continental United States with the winds and flooding from the storm impacting areas including Florida, Georgia, Alabama, the Carolinas, and Puerto Rico.

Financial assistance for affected individuals and businesses is available from a number of sources. If you have clients that a natural disaster has impacted, you can help them understand what financial assistance and relief are available.

Financial Assistance and Relief Available to People and Businesses

Financial assistance and relief for losses not covered by property insurance is generally available through a number of sources, including:

  • Federal Emergency Management Agency (FEMA) – Funding from the federal government in designated disaster areas to help businesses and individuals with temporary housing; debris removal; infrastructure restoration – roads, bridges, communications, electricity, and other utilities; remediation, construction, and other expenses.
  • Small Business Administration (SBA) – Long-term, low-interest loans to repair or replace damaged property. Home Disaster Loans are available to homeowners and renters to repair or replace disaster-damaged real estate and personal property, including automobiles. Businesses of any size may obtain Business Physical Disaster Loans to repair or replace disaster-damaged property owned by the business, including real estate, inventories, supplies, machinery, and equipment. The SBA also offers Economic Injury Disaster Loans (EIDLs) of up to $2 million to meet expenses the business would have paid if the disaster had not occurred. FEMA also provides recovery grants to small businesses, but only through referral upon completion of the SBA loan application.
  • State and local relief programs – Programs for small businesses are limited, and state governments often appropriate emergency funds only after a disaster declaration is made, which delays immediate assistance.
  • Private debt, loans, or lines of credit from banks and other lenders – Securing a loan or line of credit requires collateral, but a disaster can limit the ability of business owners to pledge their homes that may be damaged from the disaster.
  • Alternative funding sources – Provide funding solutions, including invoice factoring and purchase order (PO) financing, to quickly increase cash flow and working capital. They are less difficult to apply for than a bank loan. 

The ability to obtain funding for cash flow and working capital, and to obtain it quickly, is critical to your client’s ability to supply and provide services to customers in disaster-ravaged areas.  That said, if your client has been directly impacted by the natural disaster, they may find themselves in need of critical cash flow to aid in their recovery efforts.

How To Help Your Clients

The best way to help your clients is by partnering with a funding source that has experience in funding emergency preparedness and natural disaster relief projects.  Since Capstone’s founding, we have specialized in finding working capital solutions for small to mid-sized businesses and have funded many critical disaster relief projects and transactions.  We look for client-specific solutions to enable us to help as many businesses as possible meet their business funding needs no matter level of urgency.

Earlier this year, a disaster relief transaction came to us through a client that had been awarded an emergency purchase order to supply the State of Louisiana with 250 trailers related to continued Hurricane Irma recovery efforts. Capstone provided funding via invoice factoring and purchase order (PO) financing facilities. The transaction would not have been possible without Capstone’s ability and know-how to structure the transaction and efficiently (and quickly) deploy business funding, as the trailers had to be delivered within five days of receipt of the PO. 

Fast forward to recovery efforts stemming from Hurricane Ian, Florida officials are aware of how our client could perform and deliver on time and may use them to supply trailers for emergency housing in Florida. Organizations and businesses in hurricane-ravaged areas are also reaching out to Capstone for assistance in funding disaster recovery initiatives, as they are aware of our past performance and experience with such initiatives.  

What makes Capstone different from so many other companies who offer business funding is we have the experience and knowledge in structuring transactions. Capstone understands the complexities involved and has the relationships, necessary capital, and ability to rapidly deploy capital to clients that provide products and services to organizations and businesses serving those affected by natural disasters. 

Typically, the situation’s urgency requires funding sources that can quickly act quickly and structure a transaction.  Traditional (institutional) financing and funding methods may not be an option because of their lengthy application and approval process. 

Clients that work with flexible and fast funding sources with disaster recovery project experience can be more responsive and successfully perform. As a consequence, they have the ability to take on larger projects and provide a better quality of service.  These clients are awarded more and larger projects and become preferred vendors/service providers during natural disasters.  

Capstone provides a range of financial products designed to meet the needs of nearly any type of business, including trade financing, invoice factoring, and PO financing.  If you have clients in any area devastated by natural disasters that need quick access to working capital and cash flow, contact Capstone today.

Getting Business Funding with Bad Credit

09:33 27 October in Blog, Business Funding

If you own a small business, you know how difficult it can be to obtain the credit you need to supplement your cash flow and working capital. Vendors, suppliers, banks, and other lenders are reluctant to extend credit to small businesses, especially if they have bad credit, forcing them to live hand to mouth to meet payroll, pay suppliers and fill orders. Yet many small businesses survive and grow even when business is tough. They can do this by securing business funding that is flexible and works with them, even if they have bad credit.

Securing Business Funding with Bad Credit

Small businesses that have cash flow problems and find it difficult to obtain funding for their working capital needs usually have a number of the following characteristics:

  • Bad business credit or no credit rating 
  • Limited operating history
  • Limited working capital and cash flow
  • Few business assets that are not already encumbered by liens from lenders 
  • Limited or poor credit rating of the business owner 
  • Limited personal assets to pledge as collateral

Unfortunately, these characteristics are strikes against you when you apply for a loan from a bank or other lenders. Banks have limitations on the number of loans they can make to businesses with bad credit and they have to set aside additional capital in case of credit losses which does not earn a return.

Obtaining a small business loan with bad credit is even more difficult when the economy is weak, and the Federal Reserve is raising interest rates. In this environment, banks and other traditional lenders tighten their credit requirements and focus on larger customers with greater financial strength.

Fortunately, there are alternative funding solutions that small to mid-size businesses, including those with bad credit or no credit, can work with to obtain the working capital they need.

Alternative Funding Solutions 

Alternative funding sources, such as invoice factoring companies, do not have the same limitations as traditional lenders. They are more flexible and can work with clients to custom-tailor programs to support their business model. 

A key alternative funding solution for small to mid-size businesses, including those with bad credit, is invoice factoring. The cash you have invested in generating accounts receivable can be freed up with invoice factoring to increase cash flow and working capital. Even if your accounts receivable has a lien from another lender, a factoring company can often successfully negotiate an agreement with the lender to carve out accounts receivable for a factoring program. 

Invoice factoring accelerates the conversion of accounts receivable into cash, providing immediate cash flow and working capital. Funding is not dependent on the creditworthiness of your business. Instead, the creditworthiness of your customers is used for determining whether you can factor your invoices.

Typically, businesses are forced to wait 60 days or more before they are paid for the products or services they provide. Factoring turns those invoices into nearly immediate cash. This allows business owners to have the necessary cash on hand to sustain operations and meet obligations to their customers while not depending on a traditional lender for a line of credit.

Advantages of Invoice Factoring

Some of the advantages of invoice factoring include:

  • Faster than business loans – In most cases, rather than waiting weeks or months for bank approvals, you can have cash in your bank account within days of accepting a factoring contract and having your customers approved.
  • Flexibility and control – Factor all of your invoices or only specific ones. You select which customers you’d like to factor. You may elect to use a process called “spot factoring” which is a funding method where you simply take a valuable invoice and turn it into nearly immediate cash with no long-term agreement. This is common when a company has a single, one-time need for immediate capital to get them over a period of slower cash flow that is not expected to continue.
  • Strengthen or repair your credit profile – With sufficient cash flow, you can meet vendor and supplier payment commitments. As you build up a positive credit history by paying in full and on time, it will gradually boost your business credit score. Invoice factoring helps to strengthen your credit profile using the strength of your customer’s credit, not the bad credit of your business.
  • Streamline credit and collections – Invoice factoring eliminates the hassle and expense of chasing customers for payment. It also provides credit and background checks on your customers, and online reporting is available 24/7 to help you manage your invoices and cash flow.

 

Qualifying for Funding

Even if you have been turned down for a business loan or line of credit, you can convert your open invoices to cash almost immediately with invoice factoring. Qualifying for funding is relatively easy. The key requirement is to have unpaid invoices that are payable by dependable and creditworthy customers. Whether you need immediate capital or regular access to cash, invoice factoring can help you meet your financial obligations even if you have bad credit.

Customized Solutions Work Best

This is one reason more businesses are turning to Capstone. Regardless of what your business credit situation is, your financing needs are not the same as every other small business. We don’t take a one-size-fits-all approach to fund working capital since every business operates differently and has different cash demands. We take the time to understand your business model, your goals, and your overall financial situation. We work with you to develop a customized solution for your business funding needs. We understand the importance of cash flow to the long-term success of your business and we are committed to providing solutions to help you succeed. 

Capstone is here to help. Let us work with you today to help you find the best solution to your cash needs without taking on more debt. Whether you are facing an immediate one-time cash need to secure a contract or you need a long-term solution to cash flow, contact our skilled team of representatives today and let us work with you to find the best options for your funding needs.

Commercial Funding Through PO Financing and Invoice Factoring

16:30 10 October in Blog, Broker Resources

Small and medium-sized businesses will often face cash flow and working capital problems at one point or another.  For financial brokers or ISOs looking to help clients manage these issues, there is no one size fits all approach.  The right type of business funding will depend on several factors, such as why the funding is needed, how quickly it is needed, and the business’s qualifications.  

While business funding can come from various sources, traditional borrowing may not always be the best option to pursue.   Banks and other institutional lenders tighten loan requirements and reduce credit exposure to these businesses when their help is needed most.  Two alternative business funding options to consider for your clients are purchase order (PO) financing and accounts receivable factoring (aka “invoice factoring.”)

What PO Financing and Invoice Factoring Are Used For

PO financing and accounts receivable factoring are two financial strategies that your clients can use to purchase inventory or materials and accelerate the conversion of accounts receivable into cash.  PO financing and invoice factoring are both used to address cash flow issues and provide working capital, but they are utilized at different stages in a transaction cycle.

PO financing is used to purchase inventory or other resources related to specific purchase orders or contracts. It provides funding to a business’s vendors or suppliers so they may fulfill an order or get started/complete a project.

Frequently, small and medium-sized businesses are unable to obtain credit from suppliers or a loan from a bank to purchase inventory or materials due to varying circumstances. It is important to note that in certain instances where the supplier is located outside the U.S., a letter of credit is usually required. PO financing provides businesses with the ability to fulfill orders as well as perform work BEFORE they’ve invoiced and received payment for the invoices. In effect, it’s an advance against the funds a business expects to receive once their customer’s invoice is paid and is intended to cover the cost of goods sold. 

Invoice factoring, on the other hand, is a financial tool that businesses use to accelerate cash flow by selling their unpaid invoices for a completed order or project to a factoring company at a discount. Businesses receive cash immediately for unpaid invoices instead of waiting for their customers to pay. This funding can then be used for things such as payroll, operating expenses, growing the business, or the next contract or project.

Invoice factoring can be used by itself to accelerate cash flow without also using PO financing. However, when PO financing is used, invoice factoring is also typically used to complete the financing transaction.

While PO financing and invoice factoring are both designed to provide solutions to a business’s working capital and cash flow needs, the key points to consider are the timing of when the funds are needed in the transaction cycle and the use of funds.  

Advantages of PO Financing

PO financing allows business owners to increase the working capital necessary to boost sales, increase product or service offerings, and allows the business to gain the edge over the completion.

PO financing is more accessible than a bank loan and may be easier to qualify for. The credit underwriting decision is based on the financial strength of the client’s customer, unlike a bank that uses the business’s credit profile regardless of the income and cash flow that will result from fulfilling a firm purchase order or contract.

Banks favor large customers and tend to reduce credit exposure to small and medium-sized businesses when they need it the most.

PO financing may sometimes cover up to 100% of the supplies, inventory, or resources needed to get started/complete a project or order without using credit available under existing lines of credit.  It also enables clients to pursue business opportunities, which they might not otherwise be able to do because of insufficient working capital, and it can be a stepping stone to developing a relationship with a supplier that leads to open-account terms.

Advantages of Invoice Factoring

Invoice factoring helps to accelerate cash flow by converting accounts receivable to immediate cash. Clients will not have to wait 60+ days for their customers to pay an invoice. Having access to those funds increases cash flow and reduces the need to draw on availability under existing lines of credit.

An invoice factoring facility is also easier to obtain than a bank loan, and the credit decision is based on the financial strength of the client’s customer, not the client. Invoice factoring facilities are more flexible to use than bank loans and can be provided for a single invoice or as a program for all of a client’s accounts receivable.  In addition, they can be custom tailored to fit a client’s business model.

Partner with Capstone for Fast Business Funding

Capstone is a leading commercial funding company that is focused on providing working capital to cash-starved businesses.  Capstone can tailor a program using existing accounts receivable to generate working capital and cash flow that fits your clients’ business needs.  

We offer every client: 

  • Fast funding and approval time
  • Higher approval rates – unlike traditional lending institutions that scrutinize credit history and years in operations, Capstone is focused on the creditworthiness of the client’s customers
  • Solutions for small to medium-sized businesses
  • Competitive rates
  • No maximum transaction sizes
  • No long-term contracts
  • Local and personalized service – all over the U.S., no matter where your client is located

If you would like to discuss PO financing and invoice factoring for your client’s business, please contact us at your earliest convenience.

SBA Loan Forgiveness for PPP and EIDLs through 2027

10:08 19 September in Blog

Many small and medium-sized companies took advantage of federal loan programs to help them survive the economic disruptions caused by the COVID-19 pandemic. If your company obtained a Paycheck Protection Program (PPP) loan or an Economic Injury Disaster Loan (EIDL) directly from the Small Business Administration (SBA) or a participating lender, it is important to understand: when and how to apply for loan forgiveness, forgiveness terms, costs eligible for forgiveness, and the documentation required.

A unique feature of the PPP is that loans are eligible for forgiveness under certain conditions, but unlike the PPP, EIDLs are not eligible for loan forgiveness and must be repaid in full.  

When to Apply for PPP Loan Forgiveness

Borrowers can apply for loan forgiveness up to the time that their PPP loan matures. For loans originated before June 5, 2020, borrowers have two years to apply for forgiveness or five years for loans issued after that date. Generally, it’s best to apply for forgiveness before the deferral period ends and payments begin, which is 10 months after the end of the covered period. However, borrowers must wait until they spend all of the loan proceeds that they want to be forgiven.

Loans funded before the PPP closed on May 31, 2021, are now beyond the coverage period, and borrowers can apply for loan forgiveness.

How to Apply for PPP Loan Forgiveness 

If your loan was for $150,000 or less, which was the case for over 90% of borrowers, an application for forgiveness can be made in one of two ways – through your lender or the SBA.

  • Through your lender. Your PPP lender will usually contact you with instructions on how to apply when your covered period ends. Some lenders provide filled-out forms with the necessary information, making your job easier.
  • Through the SBA. If your lender is one of over 1,400 institutions participating in the SBA’s direct forgiveness program, you can apply using the SBA’s Direct Forgiveness Portal. A list of participating lenders is available here.

Regardless of which approach you use, it is not necessary to submit any receipts, payroll records, or additional documentation. If you have a second PPP loan, you must show the required revenue loss before the loan can be forgiven.

If your loan was for more than $150,000, borrowers apply for forgiveness with their lender. Check with your lender before applying to see if they have their own application process. You’ll need documentation showing how your PPP loan proceeds were spent.

PPP Loan Forgiveness Terms

Loan forgiveness terms are the same for your first PPP loan and second loan if you have one. Full loan forgiveness requires that you maintain staffing and compensation levels during the covered period. Loan proceeds must be spent on eligible expenses during the covered period, and at least 60% of the funds need to be spent on payroll costs.

The covered period for loans funded in 2020 is 24 weeks after disbursement, but borrowers may opt for an eight-week covered period if their loan was funded before June 5, 2020. Borrowers who received a first or second loan in 2021 can choose a covered period from eight to 24 weeks.

Expenses Eligible for PPP Loan Forgiveness

The original PPP only included forgiveness for eligible payroll and operating costs. The Coronavirus Response and Relief Supplemental Appropriations Act passed in December 2020 expanded eligible expenses to include: supplier costs, expenses for health and safety improvements and certain property damage.

These are expenses that generally qualify for PPP loan forgiveness:

  • Payroll costs, including wages, tips, commissions, bonuses, and employer-paid benefits such as insurance, sick leave, and retirement contributions. Note that compensation for employees earning more than $100,000 per year isn’t eligible for forgiveness.
  • Operating costs, including mortgage payments and interest, rent, utilities, and business software such as accounting, payroll, or inventory management.
  • Supplier costs, including the cost of goods sold, essential to operating your business if the purchase order or contract was in place before the covered period. Purchase orders for perishable goods made during the covered period are also eligible.
  • Property damage, including repairs for damage or loss due to looting related to public disturbances in 2020 that were not covered by insurance.
  • Worker protection, including personal protection equipment and costs related to health and safety such as health screenings, installation of barriers or expansion of outdoor dining.

Documentation Required for PPP Loan Forgiveness

If your loan was for more than $150,000, the documentation you will need to provide for forgiveness includes:

  • Payroll costs
  • Third-party payroll reports for the covered period and payroll tax filings
  • State quarterly business and individual wage reporting
  • State unemployment insurance tax filings
  • Bank account statements
  • Payment receipts canceled checks, or account statements evidencing contribution to employer health and retirement accounts
  • Other costs
  • Lender amortization schedule or receipts showing business mortgage interest payments
  • Business rent, lease, and utility statements reflecting payments made
  • Invoices, receipts, or purchase orders showing covered operations expenditures, property damage costs, and supplier costs
  • Canceled checks or receipts for other covered expenses such as protective equipment and health and safety enhancements

COVID EIDL

COVID EIDL loans are not eligible for forgiveness and must be repaid in full, but borrowers can take advantage of a 30-month payment deferral period that begins on the loan date. This deferral period applies to loans approved in 2020, 2021, and 2022 and is an extension of the original 12-month deferral period.

Targeted EIDL Advance or Supplemental Targeted Advance funds (up to $15,000) are considered grants and do not need to be repaid.

Business Funding Available

PPP and EIDL loans were great alternatives to closing your business during the pandemic when times were less certain than the present.  However, with PPP and EIDL loan programs no longer a solution to your financing needs, business owners must consider alternative funding options.  Alternative funding companies, such as Capstone, may be able to provide the working capital you need to sustain your business and help you negotiate the long road to a full economic recovery.  Capstone can provide flexible and reliable transaction-based credit facilities, including: 

  • Factoring programs to quickly convert your accounts receivable to cash so you may buy inventory as well as pay employees and operating expenses
  • Purchase order financing programs for the purchase of pre-sold inventory, finished goods, or materials, and other resources related to specific purchase orders or contracts
  • Trade finance programs to support your international trade requirements

Capstone has the expertise to serve as your primary funding source or can work within an existing bank relationship for opportunities that banks and other lenders have declined or take too long to approve.

If your business has PPP and EIDL loans, managing your loan repayment along with implementing the proper business funding strategy will help ensure you have access to adequate working capital and will protect your financial resources.

For more information on PPP loan forgiveness, read our white paper: Payment Protection Program Loan Forgiveness Guide

How to Become a Factoring Broker or ISO

02:52 12 September in Blog, Broker Resources

The global factoring market is a trillion-dollar industry critical in providing businesses with alternative financial solutions.  With entrepreneurship becoming increasingly popular and people wanting to be their own boss, many professionals find the opportunity for a career and success by becoming a broker within this industry.

Whether you are a budding entrepreneur, looking for a source of residual income, or simply want the freedom of working from home, becoming a factoring broker may be a career path that complements your talents and gives you the lifestyle you prefer.

What’s a Factoring Broker or Independent Sales Organization (ISO)?

A factoring broker is an industry professional such as a commercial financial consultant or independent sales office (ISO) that acts as an intermediary “referrer” between small or medium-sized businesses needing accelerated cash flow/ working and a factoring company. Factoring companies (factors) provide alternative financial solutions to accelerate cash flow and increase working capital. 

A factoring company is not a bank or traditional institutional lender, and they do not make loans. Factors provide alternative funding solutions to a broad range of industries that are more flexible and easier to obtain than a bank loan. 

Factoring brokers are not loan brokers. Loan brokers act as an intermediary between a borrower and a bank or lender.

Alternative Financial Products and Services

The products and services factors can provide include: invoice factoring, purchase order (PO) financing, trade financing, and business services.

Invoice factoring is a form of debtor financing that businesses use to accelerate cash flow or increase working capital by selling their invoices (account receivable) to a third party known as a factoring company at discount.  Businesses receive cash immediately for their unpaid invoices instead of waiting for their customers to pay.  Factoring is easier to obtain and more flexible than a loan. Credit approval is based upon the financial strength of the client’s customer, not the credit profile of the client.

PO financing can be used along with invoice factoring and funds the purchase of pre-sold inventory, finished goods in most cases, materials, or other resources related to specific purchase orders or contracts.  When the client bills their customer, the invoice is factored to pay off the PO financing facility.

Trade financing provides funding for international imports and exports and domestic transactions.

Factors can also provide credit and collections services and other business solutions to help clients attain their objectives.

These financial products assist clients in many ways, including their needs for working capital solutions, business growth, seasonal gaps in cash flow, turnaround funding, etc.  Factoring, like many areas of finance, has its own jargon or lingo. When considering becoming a factoring broker as a career, it is helpful for the financial professional to know and understand.

Reasons to Become a Factoring Broker or ISO

There are several reasons to become a factoring broker or ISO, including:

  • Growth potential: The global factoring market is a trillion-dollar industry and is projected to grow at a CAGR of 6.1% from 2022-2027. Much of this growth will come from small and medium-sized businesses, the heaviest users of alternative funding solutions.
  • Focus on business development: ISOs refer potential clients to factors. Factors do the heavy lifting required to evaluate and approve new clients. They also work with clients to onboard them to have a smooth transition. This leaves ISOs more time to develop prospective clients and grow their business volume.
  • Unlimited income potential: factoring brokers earn commissions over the length of time the client has an active relationship with the factoring company. Commissions can grow without limit with increased volume from existing clients and the development of new clients.
  • For accountants, insurance agents, lawyers, and other professionals, commissions can add another income stream to their businesses.
  • Work from home or an office and benefit from a better work/life balance.
  • The investment and time required to get an ISO up and running is low.
  • There are no specific education requirements or formal licensing in most states. Some understanding of financing and business transactions is helpful.
  • The process to sign-up and do business with a factor is simple and requires little time.

Steps to Become a Factoring Broker

If you would like to become a factoring broker with Capstone, the first step is to contact us via phone at 347-821-3400, through a web form on the website or by sending an email to [email protected]  

The next step of the onboarding process is to sign an Originator Agreement which identifies the terms of the relationship. We will then provide you with application documents, tutorials, training materials, brochures, and other educational aides to facilitate the onboarding process. After completing these steps and digesting the onboarding materials, you should be ready to refer your first prospective client. 

Why Choose Capstone

The factoring company you choose to work with is crucial to becoming a successful factoring broker and making commissions. Capstone is easy to partner with and provides the support you will need to be successful. Some of the benefits you can expect from working with Capstone include:

  • Industry knowledge and experience. Capstone has been a leader in the factoring industry for over 30 years and has experienced staff to assist you with onboarding to make your transition to a factoring broker as smooth as possible.  This is also important when structuring transactions, developing innovative business ideas, and helping your clients avoid pitfalls.
  • Custom-tailored funding packages. We understand every customer has their own unique needs, and we will work with you and with your client to make sure we offer a package that meets those needs.
  • Easy agreements, forms, and transactions to work with so you can spend more time developing new business.
  • Training so you need never worry about any uncertainty with our financial products. We can provide you with training, exclusive educational materials, and brochures.
  • Marketing materials to support your business development efforts.
  • Fast funding and approval times for new clients, so you earn commissions sooner.
  • Local and personalized customer service regardless of where your client is located.
  • Competitive commission rates. If we are doing business with your customer, you will receive a regular commission check from us.
  • Financial resources to fund the necessary transaction size and support your customer’s growth plan.  Small or new factoring companies may lack the resources to fund transactions. 
  • A wide range of financial tools and programs to help facilitate the growth of your client.  We offer invoice factoring, purchase order (PO) financing, domestic and international trade finance, and pre-exporting financing programs. A single source for business funding can be more efficient and facilitate seamless business transactions. 

If you are looking to become a factoring broker or ISO and need a partner you can trust to help you build your business volume by assisting your clients, now is a great opportunity to partner with Capstone. The support we offer factoring brokers speaks to our commitment to your success. Get in touch today at (212) 755-3636.

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