Recognizing Potential Transaction Red Flags in Factoring

12:24 04 April in Blog, Broker Resources

The key to being a successful factoring broker is to identify and develop leads that have a high likelihood of being approved by the factor company you work with. The flip-side of this is that successful factoring brokers avoid leads that are marginal and have potential issues which may result in their application being denied.

Questionable leads can be a huge time suck that diverts your time and effort from identifying and developing leads to increase your business volume.

Identifying problematic leads can be difficult however experience will help you recognize the signs that point to potential problems. These signs are red flags that the lead you are trying to develop may not result in an approved client.  Avoid problematic leads by recognizing these 10 transaction red flags.

Incomplete information

The prospective client refuses to provide information or documentation and is suspicious. Documentation contains many errors, misspellings, and inconsistencies with company names.  The prospective client is unable to send all their documentation and/ or due diligence in one or two email submissions.  Legitimate clients are cooperative and provide complete as well as error-free information and documentation on a timely basis. 

Account debtors with bad credit

Client customer (“account debtors”) with weak and unfavorable trade references, poor payment history, new banking relationships, and absence of credit facilities are red flags for potential problems. 

Evidence of collusion between the prospective client and its customers 

A sudden large increase in credit terms followed by the customer’s insolvency, or a surge in volume with a new customer that has limited trade and bank references and is unable to pay, are examples of possible collusion.

Transaction has been shopped around to different funding sources or promoted by other brokers Transactions that have been shopped around are a good indicator that there are potential problems. Factor companies most likely will not decline business opportunities unless there are red flags.

Prospective client is a start-up or has very limited operating history 

Companies that are start-ups or have limited operating history have a much higher risk of operating and financial problems.  There is always the chance that the business may be a front for financial fraud or to pass on risk.

Web and social media presence 

Most companies need web and social media presence to be successful. Little or no internet infrastructure is a red flag for potential financial fraud or an indication that the prospective client does not have sufficient business experience.

Spotty client background

Excessive litigation, unfavorable media coverage, and a poor reputation in its industry. Prospective clients that are contentious and difficult to deal with are a higher risk for operating and financial difficulties, and they may simply not be worth the hassle of doing business with.

Body language of the client

A prospective client’s body language can say a lot.  Being overly aggressive or even desperate, nervousness, evasiveness, inability to hold eye contact, confusing and contradictory statements, and unexplained urgency or requests for short cuts with changes to the transaction at the last minute are all red flags.

Transaction has unusual features or trends – size, nature or frequency of transaction 

Unusually large transactions, a few large single-invoice sales, increasing volume in a declining economy, a significant increase in sales to a new customer, and significantly more generous credit terms may be indications of potential problems.  Transactions that are unusual for prospective client’s profile or significantly different than past history and industry norms are all red flags.

If the transaction seems too good to be true, it probably is.  Unrealistic assumptions and projections not supported by past history or expected trends in the industry and economy, and documentation that shows no past due accounts, DSO equal to credit terms, or other unlikely KPI results are warning signs. A sharp increase in sales volume that is not consistent with past history, sales and marketing programs, and industry and economic outlook may indicate falsified sales.

Direct-to-consumer (DTC) sales or other sales issues

Sales must be business-to-business (B2B) for the accounts receivable to be eligible for factoring.  Many businesses today are trying to sell their products DTC, and some businesses may have both DTC and B2B sales so be on the lookout for any prospective client’s sales that may be to consumers.

Consignment and guaranteed sales which are sales that are subject to any contingency other than normal returns in the course of business for quality or delivery issues are also red flags.  Prospective clients with retail customers experiencing high levels of returns, chargebacks, sales allowances or large sales deductions may result in customer (account debtor) payments not satisfying the amount advanced to the client.  This may necessitate a reduction in the advance rate, or jeopardize the viability of the factoring program.  

Learning to recognize potential transaction red flags will save time for you and the factor you work with. Time that you can use to successfully identify and develop viable client leads to build your business volume. 

Capstone has the experience and resources to help you build your business volume. For more information on Capstone’s broker resources, please read:  Broker Resources – Capstone Capital Group (

Feature: The Secured Lender – Women in Secured Finance 2022

13:54 31 March in Blog

Please join us in congratulating Jessica Governara, National Marketing Director of Capstone, for being featured as one of The Secured Lender Magazine’s “Women in Secured Finance.”

Continuing the celebration of Women’s History Month, we are very proud to highlight Jessica’s contributions to our firm and the commercial finance industry.

Women’s History Month Spotlight – Susan Chavez

11:43 24 March in Blog

The first International Women’s Day was held over 100 years ago in March of 1911.  Since then it has transformed into a month-long celebration of the contributions and accomplishments of women around the world.   To commemorate Women’s History Month, Capstone is pleased to highlight an amazing woman’s contributions and innovative leadership success.

This year, we recognize and honor the woman behind one of the most accomplished companies in our portfolio: 

Susan Chavez, Vice President, Business Development & Operations for Recommerce Group, Inc.  

Susan Chavez is Vice President of Business Development & Operations at Recommerce Group, Inc. She has an extensive resume with over 20 years of experience in financial services and operations management. Based in North Carolina, Susan is responsible for business development, project & client management, forecasting/reporting, recruitment, and strategic planning.

Prior to joining Recommerce Group, Inc. in 2016, she held several executive-level roles in manufacturing and the banking sectors.

Outside of work, Susan has positively impacted many people in her community by teaching at-risk youth, mentoring incarcerated women, organizing various fundraisers, coaching baseball & soccer, and being involved with elementary school PTA. She is a mother and an avid Red Sox baseball fan striving to visit every major league baseball stadium in the U.S.


We interviewed Susan to honor her career accomplishments and celebrate Women’s History Month. She is an accomplished businesswoman and has had a major impact on the growth of Recommerce Group, Inc.

You have worked with a variety of companies over the years. As you have progressed in your career you must have had a number of bosses. Some may have been just managers while others were leaders. In your view what makes you a good leader?

The characteristics of a good leader that I focus on emulating include: versatility, adaptability, and understanding the importance of every role in an organization from the janitorial staff to the CEO.  Taking a stand with a fact-based approach. Having the ability to make decisions while collaborating. Always learning. Dressing for the job you want (not the one you have). Waking up every day and proving why you deserve the role you are currently in with moral and ethical work.  Always giving the “Good, Bad and Ugly” to each client, internal & external, to build trust and open communication.  But most importantly, always mentoring the next you – your successor.

What advice would you offer to women just starting out in business that have a desire to work their way up the corporate ladder into a leadership position?

Learn the industry through leveraging professional associations, such as RLA (Reverse Logistics Association) and various tradeshows (RLA, Consumer Returns, International Housewares, etc.).

Learn your company through taking the time to understand each role, interdependency, clients’ perspective (how do they view you), barriers to success, and what is the “Good, Bad and Ugly” view from associates’ perspective within your Company. 

Build your path by evaluating what roles, skillsets, etc. you need in order to get to the leadership position you strive for (including dressing the part).

As a successful woman have you run into barriers, and if you have please describe them and the tools you used to overcome them?

Barriers are a constant in business, but typically they are just tension/conflict points between various groups within an organization.  For example, Business Development vs. Operations; we both want growth, it’s just a matter of how quickly it can happen.

Most successful people have a mentor or other influential person in their life that they model their behavior on. Is there a particular woman who either mentored you or you modeled your behavior on?

I believe every woman is influential in their own way depending on the topic at hand.  As I look back through my life, an individual I have admired and desire to live like is Princess Diana. Not for the fame or lifestyle, but these simple tenets:

  • Be kind to all. 
  • Serve a purpose beyond work and your home.
  • Always have a servant’s heart and be willing to take a stand.

Some women have to make stark choices to succeed in their business careers.  Can you provide any secrets to our readers on how you have successfully balanced your work and family responsibilities?

As a working Mother, candidly it is a constant struggle. However, I have set boundaries and priorities. Some weeks I am good at keeping them, and other times I fail. I never want to miss a school activity, sporting event, extracurricular activity, field trip, etc. My priorities and what drives me have changed drastically over the last eight years.  

How has Invoice Factoring with Capstone impacted Recommerce’s business growth?

The ability for a startup company, like our situation, to see immediate access to cash flow is what drew us to invoice factoring.  Factoring is more important with larger clients that typically have longer terms. It enhances cash flow stabilization and utilization.  Capstone has provided the ability to increase client mix through funding to support expansion and improved cash flows with larger Fortune 100 companies that expect longer terms. 

The partnership/relationship we have built with Capstone from essentially Day 1 of onboarding some of the Fortune 100 clients we service today has been phenomenal. Recommerce is accountable for ensuring no dilution and presenting credit-worthy clients to be factored. Capstone assisted with not only factoring. They also provided purchase order financing support during expansion phases of our business.


About Recommerce Group, Inc.

Recommerce Group, Inc. is an industry leader in returned product management, return center services, remanufacturing, reprocessing, repairing, and recycling of consumer products. For over two decades the management team at Recommerce has been servicing some of the world’s leading consumer product manufacturers.

Understanding Account Debtor Evaluation Criteria

12:23 14 March in Blog, Broker Resources

A factor company’s underwriting process evaluates new clients for factoring programs and takes into consideration the financial strength of the prospective client’s customer base. The financial strength of the client’s customer, or account debtor in factoring terminology, is a good indicator of the likelihood that the account debtor will pay the client’s invoices within the agreed-upon payment terms, which in turn repays the amount advanced to the client. 

Importance of Account Debtor Evaluation Criteria

It is important for factoring brokers to know the account debtor evaluation criteria that factoring companies use in underwriting. Knowing the evaluation criteria will give you a better understanding of the profile a potential client’s customer needs to have in order to meet underwriting criteria. It will also help you to avoid time wasted pursuing prospective clients that are unlikely to be approved because their customers do not meet evaluation criteria. It will give you more time to prospect for potential clients with customers that are more likely to be approved in the underwriting process.

The following are some of the criteria used to assess the current and future health of an account debtor. The weight given for each criteria may vary on a case-by-case basis depending on the circumstances.

Account Debtor Evaluation Criteria

  • Financial Statements
  • Key financial indicators such as profit margin, working capital ratio, and quick ratio.
  • Appropriate values for assets, particularly accounts receivable and inventory.
  • Reasonable cash reserves and working capital. 
  • Credit Ratings 
    • Business credit reports from credit bureaus such as Dun & Bradstreet (D&B), Experian, and Ansonia provide information on credit scores, years in business, high trade credit amounts, payment history, key financial ratios, as well as litigation, lien and bankruptcy history.
  • Trade References
  • Payment history – A newer relationship may not be acceptable as a trade reference.
  • Highest amount of credit used – Low credit amounts may not be a good indicator of the account debtor’s payment history.
  • Amount owing – Large amounts may indicate slow payment, cash flow problems or over reliance on one supplier.
  • Total past due – Dependent upon length of time past due, frequent and large past due amounts may jeopardize the evaluation.
  • Terms of sale – Limited payment terms, deposits, or cash in advance may indicate prior payment problems.
  • Date of last sale – An old reference may not be useful for an evaluation.
  • Bank References
  • Length of the account debtor’s relationship with their bank – A newer relationship may indicate prior financial problems at another bank.
  • Type of collateral – secured or unsecured.
  • Credit facilities – Facility amount, and current and high balance. Having a high balance or not being in compliance with covenants may indicate cash flow problems.
  • Checking account – Current and high balance, and NSFs. Low balances and NSFs may indicate cash flow issues.
  • Client’s Internal Pay History
    • Length of time the client and account debtor have been doing business.
    • Previous payment history the client has with the account debtor – High credit, total volume, average payment days, past due amount, and write-offs.
    • Concentration – A client having a large portion of its invoice volume made up by only a few account debtors may affect the approval decision. 
  • Public Filings
    • Public companies are required to regularly submit public filings and financials -information may be more accessible on the internet by using websites such as YAHOO Finance or EDGAR on the website.
    • Things like stock performance, financials, existing lines of credit, disclosures, etc. are evaluated.
  • Bond Claims – applicable for construction industry contractors
  • Surety bonds – amounts and terms
  • Claims against surety bonds – Claims may compromise accounts receivable eligibility for factoring.
  • Web Presence
  • The account debtor’s website, social media, and news articles may all contain information relevant to the underwriting process.


The following are some potential red flags that may indicate problems for an account debtor evaluation.

Potential Red Flags

  • Low bank account balances – Low balances may indicate a cash flow and working capital problem.
  • Lack of existing credit facility – May indicate problems obtaining credit in the past and/or insufficient investment capital.
  • Limited trade references – Limited trade references may indicate past credit problems and insufficient working capital.
  • Very limited operating history – Companies with a very limited operating history tend to be higher credit risks due to the increased likelihood of operating problems and the financial difficulties they create. 
  • Prior bankruptcy – May indicate a risk of continuing operating and financial problems.
  • Excessive litigation – More litigation than normal, and a reputation for being difficult to do business with, may increase the risk of operating and financial difficulties.
  • Contra-accounts – If the prospective client and the account debtor have account payables and receivables with each other, the account debtor could offset the payment of the client’s account receivable, which would compromise the factor’s collateral.
  • Affiliates and arm’s length transactions – Accounts receivable from related party transactions are usually ineligible for factoring. 
  • Credit terms – If the account debtor offers extended terms, it may create an unacceptable level of financial risk.
  • Consignment sales – Consignment sales distort the account debtor’s financial statements – accounts receivable, sales, and profits are overstated and inventory is understated.

Account debtor evaluations are an integral and important part of the underwriting of a new client. Understanding account debtor evaluation criteria will help you to identify prospective clients with customers that are more likely to be approved in underwriting. It will help you to focus your marketing and prospecting efforts more effectively to increase business volume.

Capstone has the experience and resources to help you build your business volume. For more information on Capstone’s broker resources, please read Broker Resources – Capstone Capital Group

Capstone Celebrates 10 Years of Success with its Diverse Funding Program

10:25 10 February in Blog

At Capstone, making sure all businesses have sufficient access to business financing options is at the core of our business strategy.  That’s why in 2012, Capstone created its Diverse Funding Program which is designed to give MWDBEs the financing tools they need for growth and to be successful.  Capstone began their program before “Diversity” was a buzzword thrown around by politicians and certain interest groups.  We have been a leader in the space because it made good business.  

Through this program, Capstone provides minority, women, and disadvantaged business entities, or in short “MWDBEs,” with access to financial and professional development support.  Those businesses participating in Capstone’s program avail themselves of many non-funding benefits including:  

  • Local and personalized services all over the United States
  • One-on-one business consulting and mentoring
  • Customized training, leadership, and executive development  
  • Procurement guidance
  • Relationship building between MWDBE clients and larger corporations as well as access to governmental and municipal markets 
  • Non-legal contract review
  • Access to bonding
  • Bid support letters
  • Budgeting and forecasting development and support 
  • Referral services for accounting, estimating, legal, engineering, payroll, and other professional services 

These additional benefits also make sure our clients are able to take advantage of the programs that have been set up for them by Fortune 1000 companies as well as state, city, and federal agencies.  Capstone has served as a primary or secondary financing source for a variety of MWDBEs.  In the last 10 years, we have seen much success with this program and have provided funding in excess of $100MM+ to qualified MWDBEs. 

Client Spotlight

Capstone is proud of the contributions it has made assisting MWDBEs with custom-tailored diverse funding programs, mentoring, and coaching over the last decade.   The below case study highlights the success and level of community improvement achieved by one of our MWDBE clients participating in the program. 

Fostering a Chance in the World through Invoice Factoring

In 2016, Capstone began working with a Pennsylvania-based non-profit advocacy organization dedicated to improving the futures of children in foster care.  Their mission was to provide a safe and caring home for all at-risk children in foster care in the Philadelphia, PA region. The organization also provided food, clothing, and therapeutic services to households of up to six children.

This client, a minority woman-owned business, came to Capstone because they were having a very difficult time accessing working capital as a non-profit organization.  Without sufficient cash flow, the client would struggle to manage cash due to irregular payment schedules.  In an effort to sustain operations, have the ability to expand, and open additional homes so they could get more children adopted, the organization sought out Capstone’s assistance for their funding program.  Invoice factoring would be the fastest way to generate immediate cash flow.  

Capstone’s solution was to provide a factoring facility to inject the necessary working capital required while providing the flexibility needed for a non-profit organization.  The client was able to factor invoices as they needed to.  Capstone also helped the client by increasing their advance rate to give them as much funding as possible and worked with them through contract extension periods.   The client contracted with state agencies and oftentimes there were a few weeks when the agencies delayed payments while they reconciled accounts at the end of their fiscal year.  The factoring solution helped keep the client stabilized during this period.  

After a few years of using Capstone’s factoring facility, the client was able to open additional homes and increase the number of children they are able to foster.  As a result, the client has been able to invoice more as they fostered and tutored additional children, thereby creating more cash flow for them to continue expanding.  They also went on to be awarded a seven-figure public agency project with the City of Philadelphia, which has been renewed for 2022 and is expected to be renewed in future years.   

Since working together, additional homes for boys and girls have been opened and there are plans to add more homes.  The client has maintained an invoice factoring relationship while utilizing other non-funding benefits of the Diverse Funding Program and has chosen Capstone as the preferred funding source.  Capstone’s factoring facility was integral to the organization maintaining operations throughout the COVID-19 pandemic while many others in the industry were stretched thin.  Many state agencies across the nation delayed payments as they struggled to manage the effects of the pandemic.  However, with factoring, the main portion of the payment is provided up-front, so any delays in payments aren’t as harmful. 

About Capstone

Capstone offers flexible factoring options for businesses in many industries. In particular, we understand the unique challenges faced by MWDBEs and we have been able to structure a funding platform specifically to support the working capital needs of these types of businesses. Capstone has experienced professionals on staff to custom tailor financing solutions for MWDBEs, and provide consultation and assistance to help them attain their goals and enrich their communities.  Whether it is a single invoice or full-contract factoring, Capstone can supplement these facilities with its Diverse Funding Program.  If you are part of one of these groups, we encourage you to contact Capstone to discuss your specific financial needs and learn more about our program.

Initiating Your First Factoring Deal

15:23 01 February in Blog, Broker Resources

At Capstone, we work closely with our financial brokers to make sure the deal submission process goes as smoothly as possible. We want you to close more deals and build a book of business that will earn residual commissions for many years to come. Getting started is easy.

Here are the steps to follow in initiating your first transaction with Capstone.

Identify a Business Prospect

Identify prospects that do business on a B2B basis and invoice customers for goods or services. Make sure they are in an industry served by Capstone. Prospects can be identified through networking, internet research, and purchased call lists.

Business development is time-consuming so use the methods that are the most successful for identifying a business prospect. Contacts developed through networking are more likely to be successful.

For additional discussion of networking, please read: Tips to Generate Lead Opportunities as a Factoring Broker – Capstone Capital Group (

Initiate Contact with the Business Prospect

The purpose of the initial contact is to introduce yourself, explain the services you provide and determine if there is a need and interest in invoice factoring.

Take notes on the company’s background information so that you can better judge if the prospect is likely to be a good fit for the services being offered.  Here is some information you may want to jot down at this stage.

  • Business name and contact information
  • Description of business activity
  • Sales volume
  • Accounts receivable balance and if they have money tied up in slow-paying accounts receivable
  • Largest 4 or 5 U.S. customers by sales volume
  • The method by which current operations are financed (and amount owed if applicable)

There is other information that will be needed to complete a profile for the prospective client but that can be gathered in the due diligence process after the prospect has been qualified by Capstone.

Avoid Common Factoring Broker Mistakes

Be careful not to get ahead of yourself and start to talk specifics of a factoring program. Capstone will often have to restructure the program you presented. Avoid making misleading statements on topics such as the turnaround of transactions and the length of due diligence and underwriting.

For additional insights on avoiding common factoring broker mistakes, please read: 7 Common Mistakes Factoring Brokers Should Avoid – Capstone Capital Group (

Qualifying the Prospective Client

Request an Accounts Receivable Aging Report and copies of relevant forms used in the prospective client’s business such as a service contract or subcontract. Identify any additional items that Capstone needs at this point.

Make sure that the information needed by Capstone is as complete as possible. This will help to expedite the process of qualifying the prospect.

Schedule an initial phone call with the prospective client, Capstone, and yourself. Capstone will review the documentation and determine if the prospect is a qualified lead.

Beginning the Process

If the prospective client is a qualified lead, have the prospect fill out Capstone’s Application Packet and compile the items listed in the Documents Required Checklist. Forward the completed packet and additional documentation to Capstone.

It is important to follow up with the prospective client to make sure that the packet is completed and additional documentation is provided promptly to avoid delays in the due diligence and underwriting process.

Due Diligence

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. Capstone will send an email directly to the new client acknowledging receipt of the due diligence fee and outlining any remaining due diligence items needed.

Proposal or Term Sheet

A favorable review of the application and supporting documentation will result in a proposal (or a Term Sheet if the transaction involves PO financing) being sent to the client.

Seamless Internal Transfer

A call is scheduled for the new client and Capstone to create a seamless internal transfer to make sure transactions will flow smoothly. Capstone will work with the client to ensure that the transmission of documents and modes of communication between the client and Capstone are ready for the first transaction.

Proposal Acceptance

The new client accepts the proposal (or signs and returns the Term Sheet for transactions involving a PO financing facility.)

Contract Preparation

Capstone prepares and sends contracts to the new client for signature for ongoing invoice factoring programs and PO financing facilities. This is not applicable for single invoice “spot” factoring transactions.

Signed Contracts

When the signed contracts are returned and the initial underwriting process has been completed, Capstone will be able to proceed with the first transaction.

Your first transaction with Capstone will flow smoothly when you follow these deal submission steps. Capstone has experienced personnel who will work with you and the prospective client to be sure the qualification, approval, and onboarding processes are handled professionally and efficiently every step of the way.

Capstone has the experience and capability to tailor factoring programs and PO financing facilities to meet your client’s working capital needs and help you close more transactions.

7 Common Mistakes Factoring Brokers Should Avoid

12:46 18 January in Blog, Broker Resources

As a broker in the factoring industry, you know that business development takes a lot of time and effort. So, when you find a potential client, you want to be sure you are prepared. It will save you and your client a lot of time and help to avoid mistakes that may result in lost business.

Don’t let the excitement of landing a prospect divert you from the preparation successful factoring brokers use to develop business.

Here are 7 common mistakes factoring brokers should avoid in order to close more deals.

Not Networking Enough

Prospecting for new clients by contacting leads from call lists, internet searches or other data mining techniques is time-consuming, tedious, and has a low probability of success. Make sure you are investing enough time networking to increase your chances of locating and developing clients.

Joining professional, civic and fraternal organizations gives you the opportunity to network with CPA’s lawyers, business executives and owners. Networking can result in leads and contacts for new business prospects. It helps you to learn about a prospect so the contact goes smoothly. Contacts developed through networking are more likely to be successful.

For additional discussion of networking, please read: Tips to Generate Lead Opportunities as a Factoring Broker

Using Outdated Technology

Many new business opportunities come in the form of start-ups and early-stage companies. These business owners are often tech-savvy entrepreneurs, who conduct their business and communications on the internet and smart phones. If you want to pursue these prospects, you should have a website and a social media strategy to attract and draw entrepreneurs to your services.

Factoring transactions are now in a digital and electronic format. You need to have the necessary technology infrastructure to effectively do business with clients and factors. Make sure you have up-to-date technology for electronic transactions and communication by voice, text and email.

Not Using a Script

When you connect with a prospect don’t just wing it when you make a presentation. Based on what you know about the client, prepare and practice a script for discussions. Whether you are on a Zoom conference, Skype or a phone call, a script will help the discussion flow more smoothly and ensure that you have covered all the important points. A script will also help you to avoid digressing and making statements that are not relevant to the factoring program and may confuse or mislead the client.

Clients appreciate well-organized presentations that don’t take more time than they should. Using a script will improve communication, reduce back and forth, and avoid unnecessary emails which slow down the due diligence and underwriting process.

Not Knowing a Prospective Client Well Enough

Not knowing a client well enough can leave you open to surprises in the due diligence and underwriting process that may result in the factor declining the business. Your time is wasted unnecessarily and it may affect your relationship with the factor and the client.

Prepare a thorough client profile and make sure that you understand the industry, business and client’s customers. Review the client’s financial strength, credit history and business reputation. A little homework will help you avoid misunderstandings and delays.

Not Speaking the Lingo

Like other forms of financing, factoring has terminology that has specific meaning. Not knowing the correct factoring terminology can create misunderstandings and problems with the client and factor. For example, confusing PO financing with factoring. These two financial products are very different and yet many brokers will use the terms interchangeably. You should understand and use the same terminology the factor uses as well as avoid using lending terms that do not apply in the context of factoring.

For additional insights on factoring terminology, please read: Common Terminology Used in Factoring

Create False Expectations

Statements like “When you factor your invoices, you can literally receive cash the same day you invoice”, or telling a client their customers can be automatically credit approved for a certain credit line can give the client false expectations. Misleading statements may cause confusion and strain your relationship with the client and the factor which can ultimately be a deal killer.

Avoid misleading statements on the turnaround of transactions and the length of due diligence and underwriting. Never provide a client with a proposal; that is the factor company’s responsibility. A factor will end up needing to restructure the program you presented, which further hinders the closing of the deal.

Handing Off the Transaction at the Improper Time

Speak your piece, then be quiet. Once you have found the client a suitable factoring company for placement, it’s important you hand the transaction off to the factor at the proper time. Many times brokers will remain overly engaged with the deal and some may even continue to shop it around to other funding sources. More parties involved can mean more confusion and it creates inefficient communication. This slows down the due diligence and underwriting process which can ultimately prevent the transactions from ever closing. Follow the factor company’s directive when they tell you “We got it from here.”


Avoiding these common factoring mistakes will save you time, increase your success in developing and closing deals, as well as enhance the relationships you have with your client and the factor. Putting in the time upfront to increase your knowledge and hone your skills will return the investment many times over.


Common Terminology Used in Factoring

14:48 10 January in Blog, Broker Resources

Invoice factoring is a widely-used form of working capital financing. Like all forms of financing it uses terminology, and this terminology has specific meaning when used in a factoring context.

If a client of yours is thinking of using factoring to increase their working capital and accelerate their cash flow, it will be easier for the client to understand the terms of the factoring agreement if the client knows the meaning of factoring terminology.

The following list of commonly used factoring terminology will help clients be more comfortable when they discuss a factoring agreement with factoring brokers and factor personnel.

Invoice Factoring: A form of debtor financing that businesses use to accelerate cash flow by selling their invoices to a third party (factor) at a discount. Businesses receive cash immediately for their unpaid invoices instead of waiting for their customers to pay.

Advance Rate: This is the percentage of the invoice amount that will be advanced. The percentage depends on certain criteria including the client’s customers’ credit quality and financial condition. The advance rate percentage is generally around 70% – 80% of the gross invoice amount.

Advance: This is the amount of money that the factoring company advances to a client when it buys an invoice.

Account Debtor:  A client’s customer.  This is the business that owes payment on a client’s invoice.

Customer Credit Limit: The maximum amount of credit applicable to a specific Account Debtor.  A client may be unable to receive an advance against an invoice if their customer’s credit limit has been reached.

Factoring Fee: The fee the factor charges to factor a client’s invoices. The fee is expressed as a percentage charged on the face value of the invoice.

Funding Period: This is the time period that begins when the factor purchases an invoice and ends when the Account Debtor pays the invoice.

Rebate: The invoice balance, fewer fees, that is deposited into a client’s account when the invoice is paid.

Factoring Agreement: The agreement between a client and the factor. It will cover all aspects of the program including fees, advance rates, credit limits, and other details.

Due Diligence: This is a review of a client’s and a customer’s financial backgrounds to determine eligibility for factoring.

Recourse Factoring: The client is responsible for paying the invoice if their customer fails to pay the factor.

Non-Recourse Factoring: The factor absorbs any credit losses that result from an Account Debtor not paying an invoice. Fees for non-recourse factoring are generally higher than recourse factoring, and credit limits may be lower.

Client: This is the business owner that wants to sell its invoices.

Notice of Assignment: A notice that is sent to an Account Debtor informing them that the invoice has been assigned to a factor.  It also informs the customer of the new address for payment.

Aging Report: A report that shows how long accounts receivable have remained outstanding.

Credit Terms: These are the terms of payment that appear on your invoice, such as Net 30 Days or Net 60 Days, which is payment due by 30 or 60 days after the invoice date.

Collections: These are payments the factor receives for invoices that were factored.

Lockbox: A bank cash management system designed to receive payments by mail and quickly deposit them into the factor’s account. Lockbox systems usually provide scanning of documents, online viewing and cash management systems.

Bad Debt: A bad debt is the unpaid balance of an invoice that is deemed to be uncollectible. A bad debt is either written off or referred to a collection agency or lawyer.

Credit Insurance: An insurance policy that covers the potential loss due to non-payment of an invoice.

The following table compares lending terminology with factoring terminology to make it easier to understand the context that factoring terminology is used in.

Loan Agreement Factoring Agreement
Loan Factoring Facility
Loan Amount Advance Amount
Lender Factor
Borrower Client
Interest Fee/Discount
Loan Payments Collections

Understanding factoring terminology will help your clients ask the appropriate questions when deciding which factoring company to work with and if factoring is the right solutions for their needs. Factoring can provide the additional working capital clients will need to finance the business opportunities that will arise in 2022 as the economy continues to grow.  Capstone has the experience and capability to tailor a factoring program to meet your client’s working capital needs.

White Paper: Funding the Cyclical Business – Post Pandemic

10:56 15 December in Blog, White Papers

The Dodd-Frank banking regulations are now eleven years old and have been fully implemented by the government regulators. The impact of Dodd-Frank on the small business community, as we predicted in 2014 and 2018, has significantly reduced the amount of bank lending to small business owners. Small business loans from banks are only made available in small amounts assuming that the borrower is willing to pledge all of their business and personal assets to the bank. These loans generally range from $50,000 to several hundred thousand dollars and are highly dependent on the quality and value of the small business owner’s balance sheet. Loans of this size are generally sufficient for small businesses to maintain their existing operations, but during times of growth or expansion, these businesses will find these facilities lacking very quickly.

The small business lending void created by Dodd-Frank has been filled by third-party hedge funds and commercial finance companies like Capstone. These multi-billion-dollar hedge funds tend to lend to smaller business
lenders who can aggregate and service a portfolio of small business loans and direct lending to larger operating companies where the loan size can be $50,000,000 or higher.


Read the Full White Paper Here

White Paper: Infrastructure Investment & Jobs Act – Contract Opportunities and Funding Analysis

12:54 30 November in Blog, White Papers

Capstone has created this white paper to assist our clients and associates to benefit from the types of projects that have been authorized by the Infrastructure and Jobs Act (IIJA) which was signed by President Biden on November 15, 2021.

Since the IIJA passed the Senate in July, many of our clients have been receiving contacts from general contractors who are approved, federal contractors. Their excitement about these opportunities, after having suffered through a difficult business environment as a result of COVID-19, faded as delays in getting the IIJA approved by the House stretched from weeks to months. Now that it has been signed into law, our clients and associates need to understand what spending has been approved and how that funding may create contract opportunities for their businesses.

Unlike the last major infrastructure projects funded during the Obama Administration, the Biden Administration has pledged that IIJA funding will actually go towards much-needed infrastructure, including roads and bridges, highways, trucking, pipelines, hazardous materials handling, broadband, modernization of public transportation, the power grid, water systems, and environmental remediation.

As you read this white paper you will see the allocation of dollars by state and by the categories listed above. We urge our readers to avail themselves of the opportunities that the IIJA creates.

We expect funding to trickle down into contract authorizations by the end of February 2022 to the middle of March.

Capstone is hopeful that this brief summary of the IIJA will allow you to take advantage of the opportunities presented to rebuild your business or expand it further.

Download White Paper Here:

Download: Infrastructure Investment & Jobs Act – Contract Opportunities and Funding Analysis

Capstone wants your business to take full advantage of the opportunities (or use projects) available through the Infrastructure Investment & Jobs Act recently signed into law.



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