Tools to Increase Productivity and Profits for Factor Consultants and ISOs

18:15 14 June in Blog, Broker Resources

Do you feel like you’re working as hard as ever but not accomplishing what needs to be done to be successful as a factor consultant or independent sales organization (“ISO”)? 

Take a minute to do a quick assessment of how your business is doing.

  • Is your client list growing?
  • Is your volume increasing?
  • Are you contacting enough potential clients to keep your pipeline full?
  • Is your percentage of conversion of prospects into clients improving?

If the results of your assessment are not in the affirmative, then you need to take steps to increase productivity, business volume, and profits.

There are three actions you can take to improve your results.

  • Avoid distractions
  • Focus on value-added activities
  • Use technology tools to eliminate manual activities and improve productivity

Avoid Distractions

Email, text messaging, smartphones, and social media can be powerful tools for communication, but they can also become a source of distraction and reduce your productivity. It’s very easy to let yourself become a slave to answering emails and text messages, and fall into the habit of reading and responding to social media postings and surfing the internet. 

A simple internet search will provide a plethora of tips on how to use these communication tools without becoming addicted to habits that can sap your productivity. These tools should work for you, not vice versa.

Focus on Value-Added Activities

Value-added activities such as prospecting for clients, making presentations to prospects, onboarding new clients, and building volume with existing clients help to increase your business volume and profits. When you are distracted or your day is filled with busy work, you will not have enough time to devote to value-added activities. Planning is the best tool to use to focus on activities that will grow your business volume and increase profits.

An annual plan can help guide you to the areas you need to focus on to achieve your objectives. A weekly/monthly plan laying out what you need to do to keep on track can help to synthesize your annual plan objectives into the value-added activities you need to focus on in the near term. And of course, a daily To-Do list is always a helpful tool to use to maximize your focus on the value-added activities you need to work on.

When you develop plans, short-term or long-term, be realistic. Don’t try to do everything. Planning too many activities will reduce your productivity and you won’t do the activities as well as you should. Focus on value-added activities and work toward your plan goals.

Use Technology Tools to Eliminate Manual Activities and Improve Productivity

Time is a limited resource. You need to conserve time for value-added activities. Manual activities waste the limited time you have available. Technology tools can help you to minimize the amount of time you spend on manual activities.

Here are some technology tools that can help you be more productive.

Automate Business Processes

If you still have manual business processes, it is essential to automate them ASAP for two reasons. 

  • Your clients and business partners, e.g. factors, probably have fully automated business processes. It will be difficult for you to continue to do business with them if you don’t automate. And, they may not want to continue to do business with you if you don’t automate.
  • Manual business processes can consume a huge amount of your time that could otherwise be spent on value-added activities. List your manual business processes and estimate the amount of time you spend on them weekly/monthly. You’ll probably be very surprised at how much time you could save by automating your business processes.

Time Management

When you own a small business of any kind, including a consulting firm or ISO, the boundaries between your personal time and business time can be opaque, which makes time management critical to your success.

  • If you aren’t using a calendar software application such as Google Calendar or Apple Calendar which are free, or Microsoft Calendar for Microsoft users, you will probably do a better job managing your time by planning your week/month and benefit from the automated reminders they provide.
  • Use online retailers, consumer apps such as grocery shopping and delivery, and restaurant meal delivery to free up time to spend on your business. 

Marketing and Communications

The value-added activities you want to focus on revolve around identifying, attracting, contacting, and communicating with prospects and clients. Following are some tools that can help you be more productive in these areas.

  • Customer Relationship Management (CRM) software can increase your productivity by streamlining customer interaction. CRM organizes client profiles, history, and conversations in one location. It gives you a concise overview of your client interactions with dashboards that provide the information you need at a glance and also allows you to schedule and automate communication.  It is not uncommon for consultants to have several thousand client prospects and networking contacts so therefore you cannot effectively build relationships without this tool.
  • Email Management Software (EMS) applications can help you to manage large volumes of inbound emails. EMS helps you to track and respond to priority messages and quickly archive and retrieve emails.
  • Social Media Management (SMM) tools can help you engage with prospects and clients. SMM enables automated and real-time posting to multiple channels. It gives you the ability to monitor social media and learn about client preferences. SMM allows you to post to multiple platforms at once and can be used to consolidate a number of networks with just a few clicks.
  • File sharing tools can help with document management and the deal submission process.  It enables you to securely distribute, collect, and organize documents more conveniently with clients and other third parties.  This tool can be particularly useful in efficiently working with large clients or with complex transactions.  It also will expedite the underwriting process once the deal is submitted to the factor company. 

Technology tools, focusing on value-added activities, and avoiding distractions can improve your productivity and profits.  This will help you work efficiently and effectively with clients and will greatly improve the probability of approval by the factor company during the underwriting process.  Your business volume will grow and so will your profits.

Capstone works with factor consultants and ISOs to help them be successful. Capstone has the resources and experience to help you increase your business volume and profits. For additional information on resources to assist you, please read: consultant Resources – Capstone Capital Group (capstonetrade.com)

Funding Strategies For Businesses To Weather a Recession

16:15 05 May in Blog, Broker Resources, Business Funding

A growing number of business leaders and economists have warned that the U.S. is headed for an economic slowdown or possibly even worse, a recession.  Are your clients prepared?

Surging inflation is driven by a tsunami of fiscal stimulus from Federal and state governments, and supply-chain constraints resulting from pandemic restrictions have made it necessary for the Federal Reserve to begin tightening the money supply and increasing interest rates.

The Russian invasion of Ukraine made matters worse by precipitating a leap in prices for energy, agricultural commodities, and metals. The Fed will probably need to tighten faster and harder than initially anticipated. Economic pundits have begun to reduce forecasts for economic growth and start discussing the possibility of the “R” word. 

The time to prepare is now.  Financial brokers can use the following strategies to help small and mid-sized companies plan ahead to weather a recession.

Accelerate Cash Flow

The key to surviving a recession is cash flow management.  In a recession, cash flow is often reduced due to a number of things including customers stretching their accounts payable to conserve cash. As a result, business owners may experience a deceleration in their own cash flow and may have to use available credit facilities.  Having high accounts receivable balances outstanding for an inordinate amount of time can be detrimental to the sustainability of a business.  A double hit to cash flow and available credit can seriously impair a business owner’s ability to meet its financial obligations. Accelerating cash flow with invoice factoring through a factor company, such as Capstone, can help to reduce this dual impact.

Invoice factoring accelerates cash flow by speeding up the transaction cycle. Instead of waiting 60+ days for customers to pay, business owners can convert their outstanding invoices to immediate cash. They will have more cash available to fund operations and reduce the need to draw down available credit facilities.

Avoid Slashing Key Programs and Personnel

When an economic slowdown occurs, it is common practice for businesses to cut operating costs in order to conserve cash.  A mistake many businesses make, however, is cutting key sales, marketing, and product programs.  These programs are the link to customers as well as the marketplace, and the source of future growth.  Cutting key programs may cost business owners much more in the long run than they will save in the short run.

The pandemic spawned a change in the labor market making hiring and retaining personnel a major challenge for many businesses. Cutting headcount to reduce operating costs and conserve cash should be carefully evaluated to avoid recruiting costs and problems hiring people that may delay ramping up when the economy recovers. 

By resisting the urge to implement drastic cuts in these areas, business owners will be able to position themselves to capitalize on the recession and potentially scoop up market share that competition left behind through their cost-cutting.  

Increase Working Capital Facilities

Adequate working capital and the right type of facilities are also critical to weathering a recession. 

If a business owner needs additional working capital, they should apply now. The Federal Reserve’s monetary tightening and interest rate increases, combined with the possibility of a recession will make it more difficult if the business owner delays. In a tight monetary environment, banks and other traditional financial institutions tighten their credit requirements and favor larger customers while reducing their credit exposure to small and mid-sized companies. 

Work with a Factoring Company

During a recessionary period, smaller community banks and other traditional financial institutions may not be able to provide adequate working capital because of lending limits. Also, many businesses may find they will fall outside the acceptable risk threshold to access and retain lines of credit as well as more traditional business funding from these sources.  Let the prospective client know that you may be able to help in the event they are unable to qualify for increases to existing credit facilities or new facilities. 

While these financial sources prefer to lend to businesses with only positive financial performance, stable cash flows, and predictable revenues, factoring companies, such as Capstone, can often work beyond these issues and provide funding based on the quality and financial strength of a business owner’s accounts receivable.   Many businesses also often require faster approvals and access to funds than banks and other typical lenders can offer. Because of these obstacles to obtaining traditional loans, business owners should consider business financing alternatives, such as invoice factoring and P.O. financing.  

Invoice factoring and P.O. financing won’t tie up availability and can be used to supplement existing credit facilities. They are easier to obtain than bank loans, and the terms are more flexible. Alternative financing facilities can be custom-tailored to meet a client’s business requirements. More importantly, approval is based on the financial strength of the prospective client’s customers, instead of the business’s credit profile.

  ———-

Business owners can survive a recession and be in a position to take advantage of opportunities by implementing the above strategies now.  They will also avail themselves to more funding options when they are not operating in crisis mode and when the financial health of their business is at its strongest.   

Whether we’re simply seeing an economic slowdown or a full-fledged recession, Capstone is here to help your clients stay focused on what they do best – running their company.  We have the experience and resources to custom-tailor invoice factoring and P.O. financing programs for your clients.

 

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 (capstonetrade.com)

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 SEC.gov 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

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 (capstonetrade.com)

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 (capstonetrade.com)

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.

LENDING TERMINOLOGY   FACTORING TERMINOLOGY
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.

Tips to Generate Lead Opportunities as a Factoring Broker

13:00 25 October in Blog, Broker Resources

New business development is crucial to being a successful factoring broker. It’s essential to keep your business pipeline full and growing. Generating lead opportunities and convincing others of the value of working with you is the first step to keeping your book of business flowing.

Focus on Your Market Niche

From construction trades to consumer products, from manufacturers to staffing companies, from suppliers/ distributors to publishing, invoice factoring can quite literally be applied to any industry and everything in between.  Choosing your niche and focusing in on it essentially sets the stage for your brokerage as well as future business relationships.  Focus on companies that need a knowledgeable, professional intermediary to help them obtain alternative financing solutions. Companies that may be less sophisticated financially, and do not have the depth of in-house financial expertise to take advantage of invoice factoring.

Leverage Your Knowledge, Experience, or Connections 

Do you have knowledge, experience, or connections in certain industries? These touchpoints could be through education, work experience, family, or friends. Leverage your touchpoints to identify lead opportunities.

Utilize Networking Opportunities

Professional and social networks can be an excellent source of lead opportunities. It’s usually better to use networks to promote yourself instead of direct selling. The network connections you establish can become ambassadors for your brand who have exposure to many more lead opportunities than you can reach by yourself.

Some examples of networks you can develop to identify leads include:

Industry Associations

Many industries have associations to promote member interests. They often have different categories of membership or affiliation. This allows vendors and service providers to participate in association activities. They can be great opportunities to network with prospective clients. Certain associations will sometimes sponsor presentations on products and services that are important to members including financing and alternative lending solutions.

Professional Groups

Like industry associations, professional groups such as CPAs, lawyers, CFOs and engineers belong to groups, which may allow service providers some form of affiliation to benefit the members. Better yet, you may qualify to be a member of these groups yourself based on your education or work experience.

Personal Associations

Alumni associations, fraternities/sororities, religious organizations, social clubs, and hobby groups can all be sources of lead opportunities. Associations can be a strong connection for building networks.

Chamber of Commerce

Membership in your local Chamber of Commerce is a great vehicle for meeting and networking with CPAs, lawyers, bank loan officers, business leaders, and prospective clients. Chamber membership usually has a cost, so see if you can attend as a prospective member to determine if it makes sense for you.

Angel Investors

Angel investors provide capital to start-ups and early-stage companies. There are angel investor groups around major metropolitan areas and they typically hold regular meetings where small business entrepreneurs “pitch” the opportunity to invest in their company. These meetings can be great opportunities to meet prospective clients, and angel investors who can be a source of business referrals.

SCORE

The Service Corp. of Retired Executives (SCORE) provides assistance and mentoring to small business entrepreneurs. SCORE chapters hold seminars and workshops on topics that benefit small business entrepreneurs including financing. Be sure to attend these events to network with prospective clients and SCORE counselors.

SBDC

Small Business Development Centers (SBDC) are usually partnerships between the Small Business Administration (SBA), area universities, and local government business development agencies. SBDC’s provide training and support to small business entrepreneurs. They also hold educational workshops for business owners. SBDC’s can be a great place to meet prospective clients, and network with SBDC staff.

Data Mining

A vast amount of information is available on various industries in databases. Some information may be available free to members of industry associations, but most data must be purchased. The data may be available for download to your computer or by access to a cloud-based website.

You can use various commercially available software solutions to manipulate the data in many ways to help you “mine” for lead opportunities.

Develop Your Online Network

Many new businesses today are run by “tech-savvy” people, who rely on the internet to communicate and run their businesses. It is essential to develop your online network to identify lead opportunities.

Website

A website is your headquarters in the digital world. An online office where you meet and greet lead opportunities, and tell them about you and the services your business offers.

The landing page on your website is where potential leads land after being directed from an ad you’ve posted on the internet, or from a link in your social media posts. It provides an opportunity to showcase your business and convert the visitor into a lead.

Social Media

Social media websites such as LinkedIn, Facebook, Twitter, and Instagram offer additional opportunities to present your business and convert visitors to lead opportunities. Visitors can click on a link to your website for additional information.

Webinars

A webinar is a live discussion online of topics of interest to prospective clients. Your audience needs to sign up to attend your webinar, so you can follow up on lead opportunities afterward.

Use your online network to provide information of interest to prospective clients. It is a much easier and more efficient way to generate lead opportunities. There are many ways to identify lead opportunities. Use your creativity to identify the approaches that will work best for you and for more information on developing as a broker, visit our broker resources.

invoice factoring partner

How Brokers Can Identify the Right Invoice Factoring Partner

07:19 13 March in Blog, Broker Resources

As a financial services broker, identifying the right partners is essential. Too often, brokers offer leads to providers of financing and find themselves on the outside looking in. Therefore, identifying capable and trustworthy invoice factoring partners early in your career is essential.

Most brokers are looking for an ongoing relationship that does not cost them future revenue; exceptional communication between the funding company and themselves; training when needed; and tools to help them maximize their business potential.

This model holds regardless of the amount of business the broker is referring and which products they need to meet the needs of their clients. That is why for years, brokers have learned to rely on Capstone.

Capstone Values Broker Relationships

If your business focuses on small companies and embraces minority-owned firms, you need a trusted partner. Your clients’ needs come before anything. You often seek opportunities to provide them with unique methods of obtaining the cash they need to keep their business functioning. Some of the ways Capstone demonstrates their commitment to broker relationships include:

  • Custom packages for your clients – every customer has unique needs and we will work with you and with your client to make sure we offer them a package that meets those needs.
  • Local services – regardless of where your client is located, we can help.
  • Regular commission checks – if we are doing business with your customer, you will get a regular commission check from us.
  • Training – you need never worry about any uncertainty with our products. We provide you with training, educational materials, and brochures, so you know which products you can safely offer.

If you are looking for a partner you can trust to help you grow your business by assisting your customers, today is the day to reach out to Capstone. Contact Capstone Capital Group today at (212) 755-3636 and see how we can enable you the opportunity to grow your own business while providing your clients with the financing they need to grow their businesses.

business finance broker investing

Business Tips: Invest in Brokers

09:38 14 October in Blog, Broker Resources, Business Funding

Some finance companies prefer to work directly with clients and avoid working with brokers. Capstone takes a different approach to dealing with brokers, we invest in their success. There are practical business reasons to taking this approach with a financial broker including the opportunity to develop a long-lasting relationship.

Why Brokers Matter to a Finance Company

The most effective marketing program will not reach every person who could use the type of financing you are offering. Simply stated, working with brokers makes sense for every financial institution since it grows their potential market. Brokers can direct the clients who best fit your market directly to you and making sure they are well-educated in your products and processes makes good business sense.

Investing in Brokers Makes Business Sense

New clients help you grow your business. Reaching out to financial brokers is a plus because many businesses use brokers to help them find necessary business services. If you take the time to train the brokers about your processes including how you review applications, what financial criteria you use to determine eligibility, and the types of businesses you typically fund, you will spend less time on new applicants. This allows you to continue growing and targeting those businesses you are most likely able to help.

Relationship Building and Financing

Before a company feels confident dealing with a new financing method or financing company, they must feel comfortable with the people they are dealing with. In many cases, a company will have been working with financial brokers on an ongoing basis to deal with a broad range of financing needs. Given they have an established relationship, clients are more likely to feel confident about going to a new source of funds when the broker has an existing relationship with them.

How to Invest in Brokers

Investing in brokers is about education more than money. While every finance company should agree to basic principles such as ongoing fees to brokers if their client remains an active borrower, there are other ways to invest in these relationships. At Capstone, we are committed to our relationship with every broker and because of that, we offer the following to every broker we deal with:

  • Training – we believe a well-trained broker can grow their own business, their client’s business, and our business. That’s why we spend time training each broker on the products and services we offer.
  • Educational Materials– we make sure each broker we work with has the educational material they need to inform themselves, as well as their clients about the range of products we offer.
  • Brochures – while word of mouth advertising is always the most direct, we also understand having high-quality printed materials available for customers is sometimes a necessity. Our brochures are available to every broker who wants them to share with new brokers or with their clients.

Once a broker has started working with Capstone, they get a monthly accounting of all activity from their clients. We believe this type of transparency is important as it helps us develop strong relationships across our broker base. Additionally, we put no caps on a broker’s earning capacity: As long as their customer uses a Capstone product, the broker receives a commission on every dollar we finance. We believe this is a winning solution for us, for clients and for the brokers who represent those clients.

Capstone Group has a variety of programs designed to help brokers succeed because we believe brokers help their clients succeed. A successful broker helps raise the viability of their clients, and we believe our relationship with brokers is one of the reasons why we have continued to be able to supply customized solutions to small and mid-sized businesses across the United States.

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.

Download

    Logo

    Submit your information to be directed to the download page.

    Privacy & Terms