Social Buzz

Social media seems to be the new hot thing when it comes to online marketing—after all, there is a huge audience available, it’s targeted, and it is about as cheap as it gets. Current marketing research from HubSpot shows that social media produces double the leads of trade shows or pay-per-click advertising. Also, companies that generate over 1,000 Facebook likes are also likely to receive 1,400 website hits daily.

B2B Social?

However, for B2B industries like factoring, the question about the efficacy of social media is raised. After all, we have a niche industry with a limited audience—and let’s face it, invoice factoring is not the most scintillating of topics! Of course we find it interesting, but don’t expect to see #factoring trending on Twitter anytime soon.

So, is social media worth the time and effort for factoring companies?

How You Use it Matters

Well, there are no fast answers to that question because the return on social investment depends entirely how you use it. According to social guru Ted Rubin, many small businesses expect too much too soon from social, and their expectations of Facebook or Twitter being a constant source of lead generation is usually off. Instead, social is more of a waiting game where “return on relationship” may take a long time. It is important to remember that B2B marketing does not actually mean one business to another—it means one living, breathing person to another. Developing real business relationships takes time in the social sphere, just like in the real world.

Profile Your Clients

The cardinal rule in marketing is to know your audience. For factors, this means having a handle on what type of content will best appeal to potential clients. Brokers should concentrate on topics that factoring professionals and other brokers want to know about and run with it. Creating conversation is great, but don’t be discouraged if it doesn’t always work—factoring is an extremely niche industry. Marketing through social media is a way to address the needs of your audience, while not coming across too “salesy.”

Takeaways

Time is precious for factors and brokers, but time spent on social media is not wasted. Unfortunately though, to see any returns you can’t go halfway. A staff member or intern should be dedicating time to researching the interests of your current and potential clients. What does your target audience want to hear about? How will they benefit from your social media efforts?

Although we do not have the same opportunity for mass appeal and engagement like B2C marketers, we have something they do not: a small, unique audience that can be catered to directly. Start researching the best social media sites for your company, because the time has come to be social.
About the Author: Factor Finders specializes in finding factoring companies that can fund difficult-to-place deals. Our services help other factoring brokers capitalize on commissions that might otherwise be lost.

If you have a prospective transaction that you cannot find a funder then contact us at FactorFinders.com. We’ll find the factor for you and split commissions 50-50.

Is there a magic formula to use to get more deals closed? We all know there is no secret that will land you more deals, but positioning yourself, asking the right questions and using common sense will sure go a long way.

Unlike a traditional bank loan which requires collateral as security, factoring typically involves advancing funds through the purchase of an invoice. The invoice is an instrument that represents a promise from one party to pay another for delivered goods or services.

No risk at all associated with buying a promise, right?

The Factor must thoroughly perform the necessary due diligence to ensure the deal is legitimate. For new brokers and factors getting started in the business it is important to understand that no two deals are exactly alike even if they are in the same industry. It is our job as both funders and brokers to peel back the layers of correspondence to get to the heart of the deal.

So where do you start?

First, what is the prospect’s motivation for invoice factoring?

Is the company expanding their operations or are they looking for a lifeline to stay above water? For us, we have always found that the shortest distance between two points is a straight line. Therefore we immediately engage with the prospect’s owners and management team to get a forward forecast of the company.

Once you have the big picture view your next job should be to focus on past performance which leads us to our second point. Try to get as much pertinent information about your client as possible. Your client should be able to gather tax returns, financial statements (audited if possible), current and historical accounts receivable aging reports, agreements, etc. As a former CFO of a publicly traded company, I know that numbers may not give you the entire story but they surely will give you a lot of chapters in the prospect’s book.

In some instances you will run across prospects that have been in business for less than a year. In this example you will not have a tax return, some interim financial statements and very light account receivable history reports. These deals will require you to think out of the box. Always examine the prospect’s experience in his or her current industry.

If someone has just started an apparel company but worked their entire life in mortgage industry, you might want to give it a closer look. Your next move should be to look at the quality of the account debtor and their current contracts for goods or services. Experience has taught us that new companies who win contracts with A+ account debtors frequently have excellent prior experience in the industry.

Finally, use common sense.

We like to refer to our red flag rule. You might be able to get away with a blemish here or there but if the flags are waving like a speed car race, you have a problem. Red flags can range anywhere from omitting pertinent information on the application to excessive liens and delinquencies on a credit report. The good news is that you will find most prospects to be honest and trustworthy when trying to get funded on invoices.

Remember, read the prospect’s entire book before you move forward on a deal otherwise yours might be a very short story.
Don D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California.

For more information, he can be reached at don.dambrosio@oxygenfunding.com or you can visit his company’s website at www.oxygenfunding.com

I have been involved in the industry for a decade and through the years have seen a number of consultants do well. However, I have also seen a large number of consultants leave the business – unable to make ends meet.

Many of those consultants made critical mistakes that could have been easily corrected. These tips are intended to help you avoid making those mistakes.

Tips For Starting as a Factoring Consultant or Broker

Tip #1: Know your product

This is the cardinal rule for success in any industry. You have to know your product, and know it well. However, most beginning consultants don’t spend enough time learning the product. How can you expect to be successful in this industry if you only have the most basic knowledge of your product?

Your objective is to be well prepared so that you can answer any questions and handle client objections. Also as important, having a deep knowledge of your products builds your credibility as a consultant, which is key to your success.

When I first started in this industry I differentiated myself from everyone else by learning everything I could about factoring. In this respect, I am very lucky because I was able to meet Jeff Callender, who has written a number of books about factoring. During my first year in the industry, when small ticket factoring was still in its infancy, Jeff was very generous with his time and mentored me. If I were starting again, my first action item would be to read every single book in Jeff’s small business factoring series to become an industry expert.

Many of my first clients told me that they had chosen my company because I was the only one that had been able to explain everything to them – UCCs, notices of assignment, invoice verification procedures, inter creditor agreements, contract nuances, industry specific questions and product limitations. Basically, I had a lot of knowledge and therefore credibility.

Tip #2: Know finance

Every factoring consultant should have a basic knowledge of finance. At a minimum they should be able to read and interpret the following financial statements:

1. Accounts receivable aging report
2. Income statement
3. Balance sheet

More importantly, you should understand exactly how factoring impacts cash flow and how it helps clients. I am not talking about the theory here. I am talking about knowing and understanding the numbers.

While you can work in this industry with only a cursory knowledge of finance, you should strive to understand it really well. It will help you do your job more effectively, speak with more authority to your prospects, and gain credibility.

Tip #3: Focus

This is perhaps one of the most common mistakes that beginners make. In an effort to try a cast as wide a net as possible, many new consultants offer a number of different products. The biggest mistake is to try and sell a number of unrelated products that have different client bases – such as offering factoring to commercial clients but also buying consumer cash flows. This often leads to a quick failure.

Even if you work with related products, such as conventional factoring or medical factoring, it’s very hard to master them all initially. A better strategy is to focus on one type of factoring, build an understanding and a client base, and then add incrementally to that.

Tip #4: Develop a sales plan, but be flexible

Before getting started, you should develop a sales plan and determine your strategy – or strategies. One simple technique is to focus on industries that you are familiar with. Leverage that knowledge and those contacts to start a client base. Work incrementally from there.

Also, you should try several sales channels at first – networking, referrals, etc – until you find which ones work well and fit your business. Be sure to measure how well your strategies are working and constantly challenge yourself to improve your sales channel performance.

One important component of your sales strategy should be to develop industry relationships with the right factoring partners. This is very important because your factoring partners are a key component of your ability to close and fund deals.

Tip #5: Keep your job

New factoring consultants often make the mistake of quitting their jobs and going full time too soon. They realize, after they have left their jobs, that building a client base and growing a business takes longer than expected. Before long, they are struggling, disillusioned, and looking for a new job.

One important advantage of this industry is that you can start as a part time consultant and build from there. You should give yourself plenty of time, up to two years, to get your business to a point where it is providing reliable revenue. And don’t be surprised if it takes six or eight months to book your first client. You will need that long to develop a credible sales pitch, streamline the sales process and find good factoring partners.

Tip #6: Be prepared to work hard – very hard

One of the biggest myths in this industry is that you can make a lot of money by working only a few hours per day. I wish it were true, but it isn’t. However, you can make a very decent income if you are prepared to work hard. During my first years in the business, 10 hour work days were common. So was working through weekends. Running a business takes a lot of work and you will only be successful if you are prepared to pay that price.

However, being a factoring consultant also affords you incredible flexibility. For example, you can determine which hours you work. Obviously, you need to be available during business hours (at times) to meet with clients and talk to prospects. But there is a lot of work that can be done during the evenings or on weekends. For many, this is the biggest benefit of being in the industry.

In Conclusion

Being a successful factoring consultant or broker is no different than being successful in any other business. You have to know your products well, provide a very good service, follow and execute a sensible sales strategy and work harder than your competitors. It’s that simple. Unfortunately, it’s not easy.

About the Author:

Marco Terry is the managing director of Commercial Capital LLC and Commercial Capital LLC (Canada), a leading factoring a purchase order financing intermediary. He can be reached at (877) 300 3258.

Many financial consultants have contacted us asking about ideas for marketing their factoring businesses. Of course, we provide as much help to our brokers as we can so we go through the entire litany of ideas and strategies. All aspects are discussed and responses generally vary.

We’ve heard “No, I don’t like networking events because I’m shy.”

Another common response is “I do not do phone cold calls.”

Still another one is “I can’t give presentations because I get nervous standing in front of a group.”

The question begging to be asked is “What do you like to do?” The answers vary, indicating that we all like certain marketing strategies and these “likes” differ from person to person.

Making the assumption that, due to our “likes and dislikes,” we will not perform about half of the available strategies, our marketing results are half as productive as it could be. Assuming we are very aggressive and we do sixty percent of the marketing strategies, we are still one third less productive than we could be. The path is clear that we can be doing more to build our business.

How Factoring Brokers Can Unite Marketing Efforts

Meeting with other factoring brokers in your geographic area and discussing marketing strategies can be the pathway to more productivity. The benefits are both obvious and perhaps elusive.

Working with others who have different skill sets/strengths certainly opens up new avenues of business opportunities. If you select a partner that likes to perform the marketing tasks that you do not, your productivity geometrically increases. Each of you can go out and market in the way best suited for each individual knowing that there are additional efforts happening simultaneously. Also realize that with a business partnership you will no doubt be sharing the increased income, but you will also be sharing the cost of the marketing efforts as well. You can structure your revenue sharing fairly and creatively based on mutual agreement. Additionally, two individuals marketing for the same business increases your name recognition and branding. These efforts add to the success of the campaigns being executed (one of those “elusive” benefits referred to above).

The Course For Factoring Brokers From Here Is Clear:

• Recognize your strengths and weaknesses regarding marketing strategies

• Find others nearby who could fill the gap created by your known weaknesses

• Build a business plan focusing on performing those tasks that each of you like

• Work together to brand a name recognition for one common business entity through each of your efforts

• Share the costs and the profits based on the business agreement you’ve created

• Approach each day with a new excitement as each of you does his/her best to build business

• Plan the work and work the plan

To summarize, “half of something is better that all of nothing.” Using a united marketing effort makes each partner the completion of the other.
About Fred Leder: Xynergy Healthcare Capital LLC is an industry specific finance company located in south Florida, with nationwide clients and referral sources.

For more information contact Fred Leder at (954) 519 2376 or by email at fleder@xynergycapital.com. You can also visit the company website at xynergycapital.com.

“A test of a people is how it behaves toward the old…the affection and care for the old, the incurable, the helpless are the true gold mines of a culture.”

-Abraham J. Heschel

As birth rates decline in developed countries and the population ages, we must consider how we are going to treat the elderly among us. According to the US Centers for Medicare and Medicaid Services, over 12 million people will need long-term care by 2020; that comes out to about four out of every ten elderly adults entering a nursing home at some point in their lives. At this moment in history we live longer on average than ever before, so the need for quality long-term care facilities is more pressing than ever.

Industry Challenges

Skilled nursing facilities provide an invaluable service to their communities, yet often face cash flow challenges that hamper their function. Some research shows that over 40% of nursing homes face significant cash flow problems.

Elder care facilities face these problems partially because of troubles associated with Medicaid. If many of a facility’s residents are on Medicaid, the per-patient per-day payment model is not enough to cover the cost of doing business. Long-term facilities often have to turn to financing to cover expenses such as payroll, but face problems securing a bank loan.

One way for skilled nursing institutions to regulate cash flow is to factor their unpaid invoices.

Benefits of Medical Factoring

Factoring is an attractive form of financing to skilled nursing facilities that have trouble securing a bank loan. Often, long-term care facilities will not have sufficient collateral to request a loan or otherwise do not qualify. Factoring, on the other hand, is a good alternative for the following reasons:

• Likely approval

• Funds within 24 hours

• Does not increase debt

• Line of credit that grows as the facility does

Factoring is a good option for nursing homes, and yet finding the right factoring company is often a challenge because most factors stay away from medical deals.

The Problem

Factoring the invoices that are sent to Medicaid is tricky, and most factors tend to avoid it. Only highly specialized firms understand the complex issues associated with medical factoring—but sometimes it is hard to find them. Those in the skilled nursing industry have better things to do than spend time cold calling factoring companies that may or may not fit their needs.

Luckily, there is a better solution.

The Solution

While PRN Funding does not do medical factoring, we do have arrangements with niche factors that do. We know some of the best medical factors in the business, which have spent years working with healthcare institutions and can factor the invoices of a long-term care facility. By trusting our expertise instead of researching on their own, long-term care facilities will save time and money.

The elderly deserve the best care possible, and that means keeping nursing homes in business. Factoring is one way to keep healthcare facilities up and running so that they can take care of those who need it most.

Philip Cohen is the founder and president of PRN Funding, LLC, which is an extraordinarily focused niche factor in the healthcare funding market place. Visit the PRN Funding website at www.prnfunding.com for more factoring and brokering information.

As great as that sounds we all know too well that most prospects do not make it past the application review to the due diligence process. In many cases we find the applicant needs some other type of financing or they have some past derogatory issues that cannot be cured.

In previous articles I’ve focused largely on the due diligence side of evaluating new deals. It is worth repeating and I cannot stress how important it is to have a strict set of underwriting guidelines that protect your company from the risk associated with funding invoices. Whether it’s having an ironclad factoring agreement, a consistent credit policy or just a standardized factoring checklist, a good factor should always update and review their due diligence procedures to ensure consistency.

But what about factoring brokers? How can they work to bring good prospects to factors?

Most factoring brokers do not have a due diligence process in place since they do not fund deals. It wouldn’t make sense for them to incur the cost of running credit reports or tax searches on prospects. In most cases the broker will either use the factors application or their own when trying to get new business.

Does the broker’s role end there? For us, successful brokers usually have several key qualities that result in more closed deals.

First, they understand the factoring business.

Although no two factors are exactly alike a typical factoring transaction involves an advance, discount fee and rebate. Obviously there will be differences among factors in amounts advanced, fees charged and so on. Since there are many prospects that are not familiar with invoice factoring, a good broker should be able to explain how a typical factoring transaction works from the advance to the rebate. If a broker is working with several factoring companies that fund different industries they should be knowledgeable of the nuances and what is generally required from each. For example, a medical receivables factoring company will most likely have a different set of requirements than that of a factor specializing in construction. This is not to say that the broker needs to get into the minutia of every transaction, but they should have the ability to prepare the prospect for items which will be requested prior to the evaluation process.

Secondly, a good factoring broker should have a reasonable understanding of the prospect’s business model and their motivation for additional cash flow.

Much of this can be accomplished by asking the prospect a few simple questions. In most cases, many of the broker’s opening questions can be found right on the application. Some examples of opening questions may be:

• How long have you been in business?

• What customers are you looking to factor?

• Why do you need factoring now?

It may seem redundant to ask questions that are already on the application but you will be surprised by how much additional information you can gather by engaging the prospect and building a rapport with them. In most cases, I can learn more about a person’s business within five minutes of a phone call than I could from an application and a credit report.

Why is it important for factoring brokers to prescreen prospects?

Think about it.

Every application requires some type of effort even if we do not run credit reports or UCC searches.

This equates to time and expense.

Every factor wants to fund new deals this is why we got into the business in the first place. However, we want to fund good deals not bad ones. That may sound overly simplistic but we are in this business to make money not chase money.

Finally, try to build a good rapport with your factor. The more you learn about their likes and dislikes you will eventually get into a groove and eventually fund more deals.

Don D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California.

For more information, he can be reached at don.dambrosio@oxygenfunding.com or you can visit his company’s website at www.oxygenfunding.com

The same goes for invoices created from elective medical procedures.

This point was highlighted in a recent article we published on Medical Factoring Wears Many Hats.

And then I received an email that intrigued me….

“My company offers medical financing to dentists and their patients.”

What a great potential for both dentists and factoring brokers to offer additional services. I had to learn more! The end result was this interview with Lenny Leff of InfinaQuest LLC.

Your email on buying dental care receivables really caught my interest. What transactions will InfinaQuest consider funding?

We purchase both medical provider receivables and consumer/patient receivables.

How does it differ from traditional receivable factoring? Would it be considered more of a consumer receivable?

While we do factor insurance receivables our core product is the consumer financing program. This provides funds for treatment not covered by insurance like braces or cosmetic procedures. It also finances patients not covered by dental or medical insurance.

Is it limited to dental care?

No, it also covers plastic surgeons, chiropractic care, hair replacement, and even veterinarian services.

How does the program work?

Patients can apply right from the dentist’s office. By filling out a short application on-line, patients will have an answer immediately. Every approval has a minimum credit line of $500.00 and up to $10,000.00. Depending on the program selected, funds can be received from us within 3 days.

What are the costs of the dental financing program?

There are no application fees for the provider or the patient. Upon approval for our program, there is an initial nominal setup fee, which is determined once they select the program that works best. There is a discount rate to the dentist and an interest rate charged to the consumer.

Is this limited to great credit?

No! Unlike other lenders we finance ALL credit types including A, B, C, and D credit scores as low as 500 FICO. There is a three tier pricing structure depending on the consumer’s credit.

Does that mean there is recourse against the dental care provider?

We have programs that are both recourse and non-recourse.

What are the advantages of dental financing?

Let’s say a dentist has 10 patients that each want $2,000 procedures but half can’t afford the treatment. That means the dentist is losing over $10,000 in revenue. By offering payment plans a doctor can expand the business, increase advertising, purchase equipment, or use funds as needed.

The medical provider achieves increased cash flow and their patients are able to receive treatment they might not have received otherwise.

How are accounts tracked?

We provide complete receivable management and provide payment plans to patients by drafting monthly payments from the responsible party’s checking account. Dentists have the option to sell us the plan and receive cash immediately.

We also offer a similar product for receivables not related to medical including:

• Memberships
• Buyer’s clubs
• Security Systems
• Water Systems
• Solar Systems
• Website design
• Infomercial
• Resorts and Timeshares
• Health club / Martial Arts

Do you work with factoring brokers and how do you handle payment of commissions?

We pay competitive commissions on any deal that a broker brings for the life of the deal and provide detailed reporting.

How did you get your start in the factoring business?

We started as a billing company and expanded to the factoring business and consumer receivables. I have been in this business for 20 years and we fund in all 50 states.

What unique benefits does InfinaQuest Medical provide?

A high level of customer service, including immediate response to our clients needs.

What do you consider the best methods for finding factoring business?

Networking, networking and networking.

Start by handing out your card at the Chamber, business networking events, or anywhere you can meet people. Remember you can’t sell money. You sell the benefits of your services. When they are ready, you will be ready to help.

What advice would you give to new professionals just starting out in the industry?

Now is the best time to get into this industry. Do not expect overnight success, but you should see a good steady growth build with hard work.

What is the most common business mistake you see people make?

Lack of follow up.

Given the current economy, have you made any changes in the way you transact business?

We are seeing more business as banks are not lending, and that includes doctors and dentist as well as consumers.

Where can people contact you to obtain more information about dental financing and other programs?

Lenny Leff
Lleff@infinaquest.com
InfinaQuest Medical
www.infinaquestmedical.com
Phone: 516 858-4101

This technique is useful because it allows you to determine, at the beginning of a month, the approximate revenues that you will earn from your efforts. And more importantly, it helps you evaluate whether your sales efforts are working as well you’d like.

Setting up Revenue Tracking

This method of forecasting is based on the simple premise that history repeats itself. More importantly, it assumes past performance is an indicator of future results. The fact is that for most of our businesses, the recent past is a good indicator of what will happen in the near future. In this case, we are only going to use this tool to forecast the number of deals and expected revenues out of your current base of prospects. This is relatively simple and can be very useful if you need to get an idea of the monetary value of your current prospects.

A small warning. Reading about math can be a little difficult, but the math itself is very easy. I have included a table at the end of each description to show how the setup looks. Once you look at these tables, you’ll see that this process is relatively easy to do and won’t take you more than a couple of minutes.

To set things up, you will need to do two things. First, you have to organize your leads based on their lifecycle stage. For this example, we are going to use three possible deal stages. They are called:

• Application: Means that a client has received or submitted application.
• Proposal: Means that a client has received or returned a proposal.
• Contracts: Means that a client has received their contracts and is reviewing them.

The second step is to look at your past deal performance and determine the closing rate at each stage. This can be tricky because it requires going over past data. But it’s worth it.

For example, your past performance may show that once you have an application, there is a 10% chance that the deal will close and fund in that month. Likewise, if you get the deal to the proposal stage you may find that you deals have a 30% chance of funding in that month. And if you go as far as sending out legal documents, you may find that your deal has a 50% chance of funding. By the way, your numbers may differ. I am using made up numbers for this example.

What do you do if you don’t have past performance data? Use an educated guess for the first month and keep refining your estimates as time goes by.

Once you have this information, the next step is to build a table with your summary deal information in it. You will need to determine how many deals you have at each stage and figure out their combined monthly volume. The following table shows the setup, and hopefully clarifies it.

This table shows that there are 10 deals in the application status with a combined potential monthly factored volume of $800K. Note that the total volume is basically the sum total of what you estimate each prospect will factor on any given month. The table also shows that you have 4 deals in the proposal stage with a combined volume of $300K. And lastly, it shows that you have 2 deals in the document stage with a combined volume of $200K.

With this in mind, the next question is obvious.

How Much Money Will These Factoring Deals Make Me?

Calculating your expected commissions is fairly easy, especially if you use a spreadsheet. To calculate your total number of expected deals you multiple the number of deals in application status by their closing rate. So, 10 deals times 10%, equals 1 deal. You do the same thing for the deals in the proposal and documents stage, and then add up the numbers. In this case, it comes up to 3.20. You would expect to close that many deals this month.

The next step is to calculate your forecasted factored volume. You follow the same exercise as we did in the previous paragraph. You multiply $800K by 10%, $300K by 30% and $200K by 50%. Again, you add the numbers and get $270K. That is the volume that your 3.2 deals will factor per month, on average.

Now we get to the important question. How do you calculate your expected commissions? You do this by multiplying $270K by the average factoring rate in your portfolio and by your average commission rate. Assuming a 2% factoring rate and a 10% commission rate, you get $540.00 in expected revenues. Don’t forget that these revenues will be recurring, since the above information was based on monthly data, you’d get $540 per month out of these deals.

Limitations

Unfortunately, some aspects of revenue forecasting can be as accurate as fortune telling, especially for brokerages. In my experience, I have found that this tool is quite good at providing me the approximate number of deals that I will close on any given month. It is less accurate at forecasting the factored volume and the expected revenues from brokerage commissions. There are a couple of reasons for this. The most important one is that large deals tend to throw your numbers off. For example, you could have 10 deals in the application status with a total of $800K. However, $400K could be tied to a single deal with the rest spread among the other 9 prospects. You know you have a 10% chance of closing one of those deals, but there is no certainty as to which one will close.

Why is this useful?

This tool is useful for the simple reason that it provides actionable information. It’s also easy to do and can be completed quickly. At a high level, it can let you know if your business is producing the number of deals that you need. And if you keep some of your old forecasts you can also use them to see if any trends are developing. At a more complex level, you can also use this tool to analyze sales channels as part of an effort to optimize your factoring commissions.

Perhaps, its most important benefit you get from this tool is not in the data that you get. Rather, building a forecast forces you to review your business processes and take a careful look at where you are right now. This can help you figure out if you are going down the right path, or if you need a course correction.

About the Author:

Marco Terry is the managing director of Commercial Capital LLC and Commercial Capital LLC (Canada), a leading factoring a purchase order financing intermediary. He can be reached at (877) 300 3258.

Discover how Purchase Order Funding and Factoring can provide full service financing for your clients.

How often has it occurred that you have prospected for factoring clients, and when it came time to qualify your lead, they really needed a finance product that provided funds before the creation of an invoice?

We know first hand that such situations are very common. We’ve even had the situation where we sent out a proposal and the applicant replied that they needed up front funding, not invoice factoring, even though we fully explained at the start that we did factoring.

It was soon after that event when I realized that factoring and purchase order (PO) funding are closely related and the two products can offer referral sources additional income and a steady flow of business.

Purchase Order Funding

PO funding is a financial product that “reaches back” to pay for goods or commodities provided by a client’s vendors. Let’s follow the chain of events in an imaginary “full service” transaction.

Our client, the seller of widgets to Wal-Mart, Marshalls and Target is not the manufacturer. The manufacturing takes place in China and our client purchases and imports the fully manufactured widgets to the U.S by boat.

The order of events just described is vital, since the manufacturer needs to be paid before anything is exported out of China (imported here). Our client must pay for the full container of widgets so he can get them to the U.S and truck them to his three customers. Our client is not buying this product to keep in inventory, but rather to deliver immediately to fulfill the three purchase orders he received from his three customers. Each purchase order confirms that the customer will buy the product once delivered if the product meets the specifications on the PO. Such specifications may be amount, sizes, colors, and other quality control details.

Our client has not yet issued any invoice to be factored, so where is the money coming from in order to pay for this shipment? That is where the PO Funder comes to the rescue.

The PO funding company will evaluate the transaction and once satisfied, will pay to the manufacturer 70% of the PO value or the full cost of the goods, which ever is less. (This structure is just for this example only, each transaction stands on its own and may be structured differently).

Prior to paying for the shirts, the PO funder will have an inspection of the shipment to make sure that the PO has been fully satisfied and the widgets conform in every way, to the specifications on the PO. Once approval is confirmed, the funder releases the payment to the Chinese manufacturer and the product travels overseas to the U.S.

The Invoice Factoring Component

The shipment arrives, gets another inspection, and is trucked to each customer. Upon delivery, an invoice is presented to the customer (Wal-Mart). At that time, the invoice gets funded (purchased) by the factor, in a process that:

a) pays off the PO funder for what he paid to the Chinese manufacturer, plus fees, and

b) sends the remaining part of the factoring advance to our client. You know the rest, once the invoice is paid in 30, 60 or 90 days, our client gets the balance of the invoice value less the factoring fee.

One obvious point that must be addresses is that the PO funder gets his fee and the factor gets his fee. Our client better have enough margin to sustain these fees or the profit will be little or none. In his underwriting, the PO funder considers the margin as high priority.

Qualifying the PO Funding and Factoring Transaction

This type of transaction is typical, and we should examine the different parts so that we understand how to qualify a transaction.

• First we notice that there is a clear and irrevocable PO issued by a creditworthy customer.

• Second (and VERY IMPORTANT) we see that our client who sold the widgets did not have to add any other process or enhancement to the product.

• Third, we see that the PO funder paid directly to the manufacturer of the widgets and did not pay more than the cost price of the widgets. Also remember that there was a pre-shipping inspection done before the PO funder paid for the product and before it was shipped.

• Finally upon delivery to the customer an invoice was issued. If the invoice had extended terms (net 30, 45, 60 etc.) a factor purchased the invoice and paid off the PO funding company.

This funding strategy pays for the product manufacturing, and pays the invoice once delivered. In many cases our client will not have to advance any meaningful amount of money to get the product from manufacturer to customer. As a broker you have virtually arranged funding for the client’s entire cycle of business.

Full Service Purchase Order Factoring

The value of these two funding processes rolled into one fluid transaction recently attracted our attention to the point where we joined forces with a well experienced purchase order financing company. Now, Xynergy Capital Group and Claro Trade Finance are one company, offering the ability to execute PO finance, and when needed, to provide the invoice liquidity for the factoring component.

Think of being able to provide full service to your clients in this manner. Many distributors fall into the need to pay for product that is already pre-sold and do not have the financial ability to put that process together. We certainly want to be your source for these transactions!

About Fred Leder: Xynergy Capital Group is a factoring finance company located in south Florida, with nationwide clients and referral sources.

For more information contact Fred Leder at (954) 519 2376 or by email at fleder@xynergycapital.com. You can also visit the company website at xynergycapital.com.

You may also enjoy these additional Invoice Factoring articles by Fred Leder:

• Top 10 Accounts Receivable Factoring Questions

• How To Build Your Factoring Business In 2013

• IRS Issues Do Not Kill All Factoring Transactions

• The Financial Professional’s Vocabulary

As far as sequestration goes, it feels a little like waiting for the other shoe to drop. Due to the failure of the government to come to a workable agreement on spending reduction, automatic across-the-board cuts were implemented on March 1st.

Many government programs and jobs will be impacted, as well as the businesses that work directly and indirectly with them. While exemptions from the cuts do exist, sequestration will have far reaching implications for industries like healthcare as well as business in general.

Sequestration and Healthcare

The healthcare industry has a lot to potentially lose from the $85 billion spending reduction due on March 1st. While Medicare cuts have been restricted to no more than 2% of the budget (unlike most programs at 4% or more), healthcare experts say that the slashes will cost the industry over 200,000 jobs.

Government officials say that coverage for those under Medicare will not change, but providers like hospitals are facing a potential 27.4% reduction in Medicare reimbursement. This puts them in a tough financial position– hence the job losses. The largest share of provider cuts goes to hospital inpatient care, at 32%, while group plans, outpatient care, home health agencies and skilled nursing facilities make up the brunt of the rest.

Certain portions of Medicare are exempt from cuts, such as the Part D low income subsidies, catastrophic subsidies, and Qualified Individual premiums. Medicaid and Social Security are exempt completely.

Sequestration and Business

While healthcare looks to be impacted greatly, business in general will be hurting even more so. George Mason University economist Dr. Stephen Fuller estimates that in 2013 alone, sequestration will put 2.14 million jobs at risk. This includes over 950,000 small business jobs from government supplier companies as well as mom-and-pop stores that deal indirectly with government contracts. Companies with 500 employees or less are facing up to 45% of job losses in the coming year. He also predicts a decrease in personal earnings of $109.4 billion as well as a GDP reduction of $215 billion. In an already struggling economy, this bodes ill for the coming months and years.

Specific Effects

Here are some examples of how sequestration will affect specific industries:

Defense: The active military remains untouched, however, civilian Defense Department pay is expected to decrease by around 20%. 46,000 temporary and term workers will be laid off, and furloughs will affect the rest. Defense Secretary Leon Panetta has said that national security could be harmed as a result.

Education: Special Education grants and Head Start funding will be reduced, as well as federal child care assistance. Thousands of teachers, aides, and speech therapists will be affected, and low income children are expected to suffer the most damage. For higher education, federal financial aid programs such as work-study will be cut by about 8.2%.

Air Travel: Federal Aviation Administration employees would be furloughed by 11 days, hampering air travel around the country as less air traffic controllers and technicians will be on duty. Security will also be affected, and wait times could increase dramatically.

Housing: Low-income families could potentially lose 125,000 housing choice vouchers, and about 100,000 formerly homeless people will lose their current housing and go to the streets once again. Foreclosure prevention advice will also decrease as HUD counseling grants will be reduced by 75,000 families.

Conclusion for the Factoring Business

Factors or factoring brokers that do business with institutions that deal with the government, such as medical facilities that bill through Medicare—heads up. Cash flow challenges for these businesses are likely on the horizon as purse strings tighten at government programs. Factoring businesses will be in a unique position to help ailing companies, and no deal should ever go unfunded. An extensive referral network or cobrokering agreement will soon be more important to have than ever.

While the “meat cleaver” approach seems like an inefficient way to reduce spending, hopefully it will serve as a wakeup call for the government to put aside differences in order to do what’s best for the country. Businesses should do what they always do in tough times- prepare for the worst while hoping for the best. After all, one thing that can never be “cut” is the indomitable American spirit of enterprise.

About the Author: Factor Finders specializes in finding factoring companies that can fund difficult-to-place deals. Our services help other factoring brokers capitalize on commissions that might otherwise be lost.

If you have a prospective transaction that you cannot find a funder then contact us at FactorFinders.com. We’ll find the factor for you and split commissions 50-50.