Moneymaking opportunities abound for factoring brokers and cash flow consultants. A factoring broker locates a business in need of account receivable funding and earns a commission for matching this business with a Factoring Investor.
Commissions are paid to the Broker by the Factoring Investor for closed transactions. While commission rates and structures vary, a broker can typically earn a commission between 5 and 15 percent of the Factor’s discount.
For example, if a business factors $25,000 worth of invoices and the Factoring Investor charges a 5 percent discount the Factor earns $1,250 ($25,000 x .05). If a commission rate of 10 percent is paid to the Factoring Broker then they earn a finder’s fee of $125.00 ($1,250 x .10). This type of commission is generally paid when the Factor receives payment on the invoices.
Another method of calculating commissions is based on the face value of the invoices rather than the Factor’s discount. The Factoring Broker would earn an average of one-half percent to 1.5 percent of the invoice amounts. For example, if the commission rate were 1 percent and $25,000 worth of invoices were assigned; the commission to the Broker would be $250.00 ($25,000 x .01). This type of commission is usually paid when the business receives their advance.
A Factoring Investor typically honors the payment of commissions to the Broker on all future advances with the same business client. This is a great source of future residual income since many businesses use factoring on a regular ongoing basis.
Are the commissions always set or can you negotiate them?
Great question Melvin!
Most commissions are set by the Factor. With that said, sometimes they have “incentives” or “bonuses” based on volume. Although you don’t want to sign with a Factor exclusively based on their commission structure (they have to perform after all!) you do want to check around a bit.
Please send me information about membership in the American Cash Flow Consulting organization or whatever credentialed cash flow arm is available. I took cash flow training some years ago, worked at if for a few years but then went off iin another direction. Thanks for your reply.
SE Davis
What do I do when a funder refuses to pay the agreed upon commission?
Great question David.
For starters a Factor will rarely ever miss the opportunity to pay a commission. Why?…
Factors spend A LOT of money to advertise and market their business – so when a consultant brings them a deal, they are looking at creating a long-term relationship. Factors know you can always take the deal elsewhere so they don’t want to have you unhappy and certainly know that cutting you out of your commission is not worth it in the long run.
In the event the factor has not paid a commission, it is usually due to either not receiving the money on the invoice they purchased (which means they are out all their money) or two, the consultant was just off on the billing cycle (and gets the payment the next month).
If in fact a consultant is owed a commission, and the Factor does not pay, you have a legal contract with them. Although it may not be worth it to try and collect through a court system, you will certainly look into bringing any current and future deals elsewhere.
The cash flow industry is a small community (we share info about Factors, Deals, etc). When a Factor does something like not paying a commission they are usually out of business almost over night.