Just type something like, “benefits of invoice factoring” into your favorite search engine and you will find pages of articles telling you how factoring works and why it is the best solution for your business.

As the owner of a factoring company I can definitely say that factoring is an extremely useful tool to help businesses grow by unlocking cash in the form of an account receivable.

But is factoring a one fit all tool for all businesses to achieve growth?

As a featured speaker and panelist at small business workshops over the last several years, I’m fortunate to be given the opportunity to speak directly to business owners. Typically, when presenting at these workshops I am joined by a traditional banker and a lending specialist from the Small Business Administration. As the person representing the factoring industry they usually give me the coveted title of “Alternative Lender”.

Solutions from an “Alternative Lender”

We are each given approximately thirty to forty five minutes to present to the group on how our industry can help them with their business challenges. When it comes time for me to present I explain that factors are not lenders but rather purchasers of invoices.

It can be confusing since many factors charge on a time based fee and in the case of recourse factors the invoice is required to be repurchased after a certain amount of days outstanding.

The factoring challenges with slow paying customers.

One of the first comments I usually get from business owners is that they are interested in factoring but would only like to fund their customers who are slow payers. I always caution that factoring companies are not collection agencies and most prefer to stay away from slow paying customers for several reasons.

Let’s assume your client has just given you a $10,000 invoice with one of her slow payers.

For simplicity purposes we will assume the factor has advanced 90% and will be charging a 3% fee for every thirty days outstanding.

We will also assume that the payer of the invoice usually takes 120 days to pay.

So let’s do the math – you as the factor have advanced 90% on $10,000 leaving you with a $1,000 reserve. If the invoice has gone 120 days outstanding that equates to a $1,200 fee (10,000 x 3% x 4).

If you only have $1,000 in reserve and are owed $1,200 then you are upside down by $200 on this transaction.

There are remedies in a situation like this such as withholding advances on future invoices or deducting rebates from other invoices. Another possible solution can be to lower the advance allowing for a larger reserve on future invoices.

However, our position for slow paying account debtors has always been to question why it takes them so long to pay.

Is the payer so financially unstable that they need to hold on to their own cash?

Is the problem with your client where they are not properly billing even though the invoices were verified?

It’s kind of ironic that experience has taught us that some of the most financially sound corporations are notorious slow payers. With large companies there is usually a myriad of red tape they need to go through to get a payment approved. Fortunately many of these larger payers now utilize online account payable systems where we have the ability to simply log into the system, see the approval and date the invoice will be paid.

Another case where factoring does not work is when the client refuses to allow you any contact with his customer.

I look at this situation as more of a common objection. For all of you new factors I highly recommend that you get a signed notice of assignment which includes signatures from both the client and the account debtor.

A “Notice of Assignment” is generally a written instruction to the client’s customer that the client’s accounts receivable have been assigned and is payable to the factor. This is an extremely important document for factoring companies. This document protects the factoring company in the event a payment is accidentally sent to the client instead of the factor.

Even if the client skips off with your money, this document ensures you are still owed the funds from the client’s customer. Hopefully, you will never have to enforce this notice but it imperative you have it as part of your requirements before funding. For further reading on this subject see our April 16th 2012 article, “The Factoring Business Notice of Assignment – Never Fund Without It”.

Also, another thought to keep in mind is how will you verify your client’s invoices if you have no contact with payer? Sure, you can skip some steps and do what some people in the industry call non-notification factoring. For our money that is out on the street, we prefer to take every step that helps to minimize the risk in any way.

These are just a few examples where I feel certain situations are not the right fit for factoring. At many of our workshops the businesses owners cannot factor with us simply due to the fact they are new and haven’t invoiced any clients. At this point I tell them to be proactive and always try to remain one step ahead of the game in managing their business.

Now if I can only figure out a way for them to give me a cooler title than “Alternative Lender.”

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

What receivables will your factoring company consider funding?

Jed Simon, CEO: FastPay primarily funds digital media receivables. We’ll advance on invoices signifying completed work including, but not limited to, ad campaigns, creative campaigns and delivered impressions.

How did you get your start in the business?

While I was responsible for digital media at DreamWorks, I recognized a universal pain point in the digital media industry – many big brands and agencies have onerous payment cycles (Net 90+) that hamper the growth of smaller digital media companies. FastPay was incubated as a unique solution these companies could use to liquify their receivables, allowing them to use the cash on hand to grow their businesses quicker without having to go through traditional methods such as expensive debt from banks or highly dilutive equity from investors.

What unique benefits does your receivable funding company provide?

We’re all about flexibility, ease-of-use, and transparency. We have a quick online application – qualified clients can be approved and funded in a matter of days. Our solution is 100% non-dilutive requiring no warrants, covenants, personal guarantees nor equity. We also have the advantage of knowing how digital media companies do business. Banks might not understand how these services make money, but we do.

Can you please highlight a business you were able to help recently with your factoring services?

We have worked with several small startups from their inception and watched them flourish into much larger enterprises, employing 50+ people and generating $10mil+ in revenue. By using FastPay in lieu of outside capital these entrepreneurs were able to retain 100% ownership as well!

Will your company work with brokers or consultants and how do you handle the commission structure?

Yes, FastPay is currently setting up partnerships where referrers receive a percentage of revenue for approved new clients. For details check out http://gofastpay.com/refer

What do you consider the best methods for finding leads?

Our New Business team keeps up with the latest news and trends in the industry and assesses which influencers and company founders to connect with. Also, the value from word of mouth cannot be underestimated. We work hard to make sure that prospects, clients, and former clients all have positive experiences with us, and we see the results in our growing portfolio.

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

My best advice would be to try to develop a sector expertise. Understanding the risk factors inherent in any given industry is quite valuable and can be a great transferrable skill-set.

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

Concentration. Too many times we have seen businesses put all of their eggs in one basket, thinking there would not be issues, only to have that strategy be their ruin. The key is diversification and working with lots of companies to minimize risk. We encourage all of our clients to work with as many companies as possible because it not only builds their value, but it also protects them if a relationship goes south in the future.

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

I think we are in the same boat as other smart companies in this economy in that we take a very cautious approach. We absolutely are ready to seize opportunities when they present themselves, but we like to make sure that we have put in the necessary work to be able to make educated decisions. Risk management is not the most fun part about running a company, but it is essential to building a strong and profitable business.

Where can people contact FastPay to obtain more information?

We can be reached at 310-651-9200 or via email at contact@gofastpay.com. We’re located in the heart of Beverly Hills, California and on the web at www.gofastpay.com

Is there anything else you would like to share with our readers?

If you are an exciting company with innovative ideas and looking to grow, come check us out! We pride ourselves on understanding the businesses of our clients better than any other financial options, and we are always eager to help.

Whenever the phone rang, I grabbed it quickly and hoped for the best. In those days, the process of qualifying a prospect could take me up to an hour. I would have long detailed conversations, learning everything I could about the client’s business. After these detailed calls, I would hand the client off to the factoring company I thought would help them best.

But there were two problems with this strategy.

First, it was not a very effective use of my time. Especially when I found out, 45 minutes into a call, that the prospect would not qualify for factoring.

And second, it did not scale well. It wasn’t long before I was on the phone eight hours a day. In those days I had three cordless phones in my office because I would easily use up the battery of two during the day. By the end of the day, I was exhausted.

Long factoring calls can be a waste of time.

Although I was working hard, I was not being very productive. I also started to realize an interesting thing: the longer the call, the lower the chance of closing the deal. Prospects that rambled for too long had the lowest chances of becoming a client. On the other hand, prospects that were succinct, to the point, and had short productive calls usually became clients.

Get to the point. Then, get out.

So I decided to optimize this process by doing two things:

a) I started timing calls, and

b) Asking key questions – first.

The objective was to keep a call at 15 minutes and get all the relevant facts from the client. By the way, I accomplished this without hurrying my clients. It was a matter of being effective and maneuvering the call.

This is the client questionnaire that I use. By the way, I do not read the questions out loud like a telemarketer. That is counterproductive. Instead, I use them to guide the conversation naturally as I speak to the client.

Question 1: How can we help you?

The objective of this question is to determine if factoring is the right solution for them. It may sound obvious, but a lot of folks call me asking for solutions that I don’t offer, such as seed capital for a business, real estate loans or other products. If factoring is not the right solution for them, I let them know and I let them go.

Question 2: Can you describe a typical transaction?

Even though factoring may be the right solution for them, they may have a transaction structure that can’t be funded. Here is one example of a transaction that does not work. We had a client that gave their customer up to 60 days after delivery to inspect the products and return it. Also, payment was due after 60 days. The customer was unwilling to verify when the inspection had been done and if it had been successful. This transaction could not be funded because we never knew if the customer would return the product and not pay for it.

Question 3: Who are your clients?

You can only finance the transaction if you know the clients have good commercial credit. The transaction won’t work If the invoices are due from companies with limited credit, no credit or payment problems.

Question 4: How have you financed your business up to now?

This is an important question, because if they have business loans, lines of credit or similar products, they will probably have a lien against their receivables. Financing companies with other types of funding is difficult because it requires that the other creditor subordinate their lien position to the factor. As you can imagine, few are willing to do that.

Question 5: Have you had tax/legal problems in the past?

Nothing will kill a deal faster than serious tax, bankruptcy or legal problems. This is often an uncomfortable question to ask, but it’s best to ask it in the first conversation. If they have issues, bringing them out in the open allows you to discuss them with the factor to see if they have a solution.

They passed the 5 factoring prospect questions. Now what?

If all goes well, you should have only taken 15 minutes to go through this process. It can take a little longer at times, but no more than 20 minutes. This should give you enough information to either pass the lead to the factor for further review, or close it all together. That’s an improvement of 300% to 400% in the use of your time.

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.

As a direct funder, we have requirements of our factoring brokers. Our brokers make monthly residual income and for that, certain things have to be done.

The basic minimum requirement is to introduce a potential client to us and to complete/submit the necessary broker agreement. Once that process is completed and the transaction closes the broker has qualified for his/her fee and once payments are collected from payers, fees are distributed.

The question here is “Should the factoring broker be satisfied with this?”

If a referral source is to be successful that individual must look after, or nurture the prospect. It should always be noted that the broker is the first line of contact and has, to some degree, already gained the confidence of the prospect well before the funding source has even seen the potential client’s company name.

At this time in the process, the broker is the most important component of the transaction. It is therefore very important to have an ongoing relationship during the underwriting and closing processes. To further illustrate we’ll go through a typical transaction.

An example of a receivable factoring transaction.

A factor or PO funder receives an email or a phone call from a broker regarding a transaction. The referral source explains the transaction as best as possible and the funder either wants to pursue it or not.

For our example the transaction is interesting and the next step is arranged. This is the conference call. The time, and dial-in number are agreed upon and the call is executed with the broker, funder and prospect.

The call goes very well and all agree to move forward.

In reality, at this point the broker has done his/her job and if the transaction is consummated, the broker has qualified for the fee. However if the broker takes this approach and no longer participates in the process, we are missing a vital piece of the puzzle.

This missing component is the initial relationship we spoke about above, between the broker and the prospect. That tool can and should be used throughout the underwriting process.

How a factoring broker can keep working the transaction.

Sometimes the prospect is slow in responding to a request for documents. The broker can tactfully get that process done. Sometimes the Term Sheet or Proposal may be unclear and more information may be needed on the part of the applicant. The broker can be a huge asset along those lines either by explaining these items or setting up another call with the funder.

Of course, the funding source has to perform its due diligence which may take a few days (weeks or even months) to complete. The broker can be a calming entity by assuring the applicant that the funder is working on it, and this time span is typical for a transaction of this type.

Finally, once the legal documents are signed and funding takes place, the broker should remain in contact with the client to see how the process is moving. Additionally, of course, the broker asks for any referral business that the new/happy client can provide.

So, the distinction between qualifying for the factoring referral fee and working for it lies in the professional approach of the broker guiding the prospect to completion.

Remember our prospects know their business quite well but will be much less acquainted with the completion of a financing application, underwriting protocols and funding procedures. From the prospective of a direct Receivables and PO funder, a good referral source remaining active in the manner described herein, is well worth the ongoing income paid, and has truly worked for it.

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.

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