This leaves many owners losing sleep and making extra trips to the mailbox in hopes of finding the payment that will turn things around.

Unfortunately, when dealing with a slow or late payer there are not a lot of good options for the small business owner.

Banks are not likely to lend you money unless you have significant assets to back it up. Even when they reluctantly grant approval, as if adding insult to injury, banks may charge substantial fees and interest for the short-term loan. Plus, the debt will show as a liability on your books.

In need of improved cash flow, many business owners look to factoring account receivables as an alternative to bank business loans.

When considering factoring it is important to remember you do not need to factor ALL accounts receivable. You get to pick and choose which ones to factor and which will continue to pay you directly.

So, when should you NOT factor your invoices?

1. Your customer typically pays within 10-14 business days.

Although you could factor a quick payer (and the Funder would love you to), you may be better off just budgeting for that time frame. However, a Factor will often give you a really good discount rate for such strong payers. Decide if the factor’s fee is worth having the money to work with sooner. If not, just wait it out and pass on sending these invoices to the Factor.

2. You don’t need the money.

Ok, this one sounds obvious, but you would be surprised. Some companies get into the factoring routine, but then don’t get back out. It is easy to become used to the create an invoice and get paid within 24 hours routine. But if your business is not crunched for cash, or you do not have a better use for the money immediately (such as the ability to realize discounts on your own goods or services) then you may just pass on factoring altogether or at least scale back on the number of invoices you factor.   You can always bump the number back up if you need to in the future.

3. You have a line of credit with a grace period.

If you have a line of credit, or even a credit card, that allows a 30-day grace period it might be better to tap into these funds on a short-term basis. A “grace period” will allow use of funds at no cost. The down side is you better be certain in your ability to pay off that balance at the 30-day mark. If you cannot pay off the debt it is likely the charges on the line of credit or credit card will outweigh the cost of factoring.

Factoring is not for everybody, but almost every small business has situations where factoring, even in the short term, can offer the perfect solution. Although some businesses use factoring permanently, most utilize factoring services for approximately 18-24 months.

Knowing when to factor and when not to factor invoices can keep your business financially fit for years to come.

FactoringInvestor (FI) caught up with Howard Chernin (HC) to fill us in on the accounts receivable funding business. Howard is the Sr. Vice President of Quantum Corporate Funding, LTD in Fort Lee, New Jersey and heads up the New Business Development division.

FI: What transactions will your company consider funding?

HC: Since 1991 Quantum has been factoring all types of receivables, except medical. We continue to target transactions ranging from $25,000 to $5 million plus.   We will still buy a single invoice rather than requiring a company to sign up for a long-term contract.

We are well known for factoring construction receivables, however we will consider all types of invoices.   Right now we are seeing quite a bit of manufacturing, staffing, and construction.

We are considering deals all across the country. In fact Tobi in our office moved to Arizona and is developing business in that part of the country.   The first step is to send us some basics on the transaction, including debtor information and aging reports, to gauge our interest level.

FI: How did you get your start in the factoring business?

HC: I worked in the corporate world for several Fortune 500 companies. I wanted to do something completely different and started a fire sprinkler company in the construction field. That led to my involvement in the factoring business with Quantum in 1993.

FI: What unique benefits does your company provide?

HC: ME! I’m the biggest benefit in helping consultants work with our company to factor receivables for their clients.

FI: How do you handle commissions to brokers or consultants?

HC: Our standard commission is to pay 10% of whatever Quantum makes for the lifetime of the account.

FI: What do you consider the best methods for finding deals?

HC: In today’s market it is all about referrals.   Talk to people and tell them what you do.   Think about your sphere of influence.   Everyone knows 250 people and they in turn know at least one person.   So now you have at least 500 people you are connected to on some level. You must constantly use your own referral base to build your business.

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

HC: The first and most important thing is to get on that phone and be able to take rejection.   If you can overcome rejection you can succeed.

Initially a consultant needs to be able to make 250 calls per day and learn from each call. Out of those 250 calls you might get 15 leads to follow up on.   Then follow the lead from the starting point to the ending point.   Understand what the factor likes and their requirements then participate in the funder/client conference calls and just follow the whole process.

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

HC: Consultants often get hung up on that one deal and just won’t let loose of it.   It is the old adage that you have to throw enough deals against the wall and have enough leads working in order to make something happen.

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

HC: One of the most challenging aspects of being in the factoring business now is evaluating credit.   A company’s credit can change on a daily basis.

For example someone called me up this morning on a $500,000 receivable owed by a well-known company.   Now I need to double check on how that company is fairing in the current market. It is a very challenging economy and nothing is a given anymore. We must double-check everything.

Where can people contact you to obtain more information? Our website is a great place to start for factoring information and transaction guidelines.    You can also contact me at hchernin@Quantumfunding.com or by phone at 201-799-4342. Tobi Wilkins, VP of Sales and Marketing, is also available at tobi.wilkins@quantumfunding.com or 201-799-4348.

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

HC: We encourage the consultant to participate in our conference call with the client.   This is such an important part of the process. The factor and client can both understand what is needed from each other.   It also keeps the consultant in the loop and they know first hand what it takes to get the deal done.

There are two key words in our business; partnering and collaborating. You must be able to partner and collaborate with other people to succeed.

FI Summary: Helping businesses raise cash through factoring account receivables is one of many cash flow categories where consultants can earn commissions by referring transactions to funding sources.

Factoring Investor (FI) asked Jeff Callender, founder and president, to share some information on working with his company.

FI: You work with very small business clients that most factors usually turn away. How are you able to work with such small companies?
We intentionally operate with extremely low overhead. We work from a home office and keep our expenses to a minimum. Larger factors who work in big offices with a hefty payroll have a high break-even point to make a profit, and thus need clients with larger volumes to make factoring worthwhile. We don’t have those burdens and are small by choice. We prefer to give extremely personalized service to select clients, rather than take on as much business volume as possible. We have found this to be preferable both for us and the clients we accept.

FI: Do you accept clients from any specific geographic area?
While we are located near Seattle, we accept clients anywhere in the 50 states of the U.S.

FI: Do you accept referrals from consultants?
Yes, in fact about 60% of our clients come directly from consultant referrals. We have a Consultant Packet with all necessary information available from the Consultants link at DashPointFinancial.com. We pay generous commissions on a monthly basis for the life of an account. We also pay commissions “one deep” that is, if a client you referred, refers us to another company, and that company becomes a client, you receive ongoing commissions for this referral as well.

FI: What type of clients does your company target?
We fund only clients who begin factoring less than $10k in total volume to start and gradually grow them to $50-60k.

While anticipated growth is welcome, we don’t require it. Some factors accept very small clients with the expectation they’ll grow; if they don’t, such clients are often dropped. We don’t do that; for example, I’ve had one client who’s been factoring about $5-6k a month for around five years now, and I consider him a good client. I don’t make the “big bucks” with him, but his low-maintenance account has provided steady, dependable income for a long time. That works for me. However, a great many of our clients do grow over time.

Many of our clients are service businesses, especially in the cleaning sector – janitorial, carpet cleaners, window washers, etc. We’ve also had good success with small courier services, new temp staffing companies, security guard firms, even a couple day care centers who have some kids whose care is paid by the state, which is what they factor. Many of our clients are “Mom & Pop” operations the bigger factors usually avoid.

In general we look for clients with the following characteristics:

• Are honest small business owners in need of improved cash flow.
• Have an existing incorporated or limited liability business and business license (we can’t fund sole proprietors).
• Wish to factor fresh and ongoing invoices to creditworthy business or government customers (not private individuals).
• Factoring volume is less than $10k per month to begin.
• May be young or start up companies, or may have been in business for some time. The significant matter is the need for improved cash flow.
• Typically wait 2 weeks to 2 months (preferably 15 to 45 days) to receive payment — which is the primary reason for cash flow needs. We usually do not accept non-government customers who take more than 60 days to pay.
• Have no UCCs or liens outstanding, no significant tax arrearages, nor unsatisfied judgments.

FI: Are there any industries you do not factor?
We do not deal with construction or trucking receivables, nor medical receivables billed to insurance companies or private individuals. We do fund medical invoices billed to hospitals and creditworthy businesses. Invoices from clients to insurance companies or apartment management companies are usually avoided as well.

FI: What happens if a company becomes too large for you to continue factoring?
We have contacts with numerous factoring companies and will either 1) have another participate with us in funding the account (which is transparent to the client), or 2) refer them to a larger factor. Either way the client continues to receive excellent service. If a client referred by a consultant moves to a larger factor, we make sure the new factor continues to pay the consultant a commission and we move out of the picture. We make a point of protecting our consultants’ interests since our business relies on their referrals.

FI: How are you funded?
We are funded primarily with private financing. This means we are not constrained by requirements or restrictions that banks often impose, nor are we vulnerable to unexpected or sudden withdrawal of operating funds as are companies funded completely by banks.

FI: What is your experience in the factoring industry?
I began as an independent factoring consultant in 1994 and started buying small receivables that year. I have worked both as a small independent factor, and also as an Account Executive for a large factoring company managing part of a large corporate portfolio.

Previously I owned a sign shop franchise during which time I learned firsthand how factoring can provide needed cash flow for a small business. This provided experience from both sides of the factoring table enabling me to know what it’s like to run a business and need adequate cash flow.

FI: What sort of educational materials do you provide clients and consultants?
I have written several books and ebooks on factoring small receivables that teach others how to succeed in this business. Unlocking the Cash in Your Company is popular with business owners who want to understand accounts receivable funding and how it can benefit their business. How I Run My One-Person Factoring Business is a favorite among consultants and investors who are thinking about making money as small factors and are curious as to how to do it with few or no staff people. I also provide mentoring for people interested in becoming small factors, plus sell an online software data base product (FactorFox) used by many smaller factors to track their portfolios.

FI: How can someone interested in working with your company contact you?
Dash Point Financial has a strong online presence and helpful information at www.DashPointFinancial.com. You can reach me by email from the site or call 877-620-3699.

FI Summary: Helping businesses raise cash through factoring account receivables is one of many cash flow categories where consultants can earn commissions by referring transactions to funding sources.

Ok, you are sold on selling some invoices, you see the benefits, but you are just not sure how to select the right factoring company. Here are 7 essential factors to consider and compare:

1. Recourse or Non Recourse – Recourse typically alludes to a Factor having the right to make you buy the invoice back in the event the payer or debtor does not come through. Non-recourse is just the opposite – the Factor is on their own. Typically most Factors will have some sort of recourse but the terms of how that operates are worth comparing.

2. Term of Relationship – Some Factors require a term outlining how long you must factor accounts receivable with them. Typically this is one-year term, but it varies Factor to Factor. You don’t want to tie yourself to a Factor that you may outgrow so look for contracts you can easily terminate with advance notice.

3. Fee Structure – The fee structure affects your bottom line. Since this can vary greatly it is one area where you want to shop around. The discount fees are typically around 3% but could be much less (or more) depending on the types of account receivables and the individual business. Some factoring companies might also charge a one-time set up fee before purchasing invoices.

4. Monthly Minimums – A Factor might require a minimum volume level each month. For some businesses this is a non-issue given their volume levels; for others this can be a serious challenge. In either case there are Factoring companies that don’t require monthly minimums or simply work off a monthly average.

5. Service – Don’t underestimate service. Is the Factor impersonal? Are they late in returning phone calls? If so, you may want to look for someone else. Many companies will give up a little on the fee structure to have a company with better quality service.

6. Full Service Factor – Many Factors offer services that go way beyond purchasing invoices. They can pre-qualify potential clients, handle billing and collections, or even help during tax time. Although you may not need any of those services initially, consider picking a Factor that can grow with you.

7. What about factoring brokers or consultants? – Many companies work through a broker. Although this seems like you are adding another layer, brokers often know numerous Factors. They can assist with the comparison shopping and pair you up with the best factoring company that fits your needs. Since factoring brokers are paid by the Factor directly you typically don’t give up anything in the way of fees to work with a consultant or broker.

A successful accounts receivable financing program should provide cash advances that meet your needs. Feel confident in selecting the right company to factor invoices by comparing services upfront.

Factoring account receivables is helping businesses through these tough economic conditions opening the door to earning opportunities for cash flow consultants.

FactoringInvestor (FI) caught up with Michael Ponomarew (MP) from Millennium Funding to fill us in on how they are helping consultants earn fees by helping businesses sell invoices.

FI: So, tell me what has Millennium Funding been doing lately?

MP: Really nothing different than we used to do, just more of it. We continue to concentrate on the 3 main ways to secure deal flow:

1. our own direct marketing,
2. bank references, and
3. the broker/consultant network.

We have become successful in securing strong relationships with major international banks which has resulted in reviewing a great deal of their turn downs – and as you would guess, this activity has increased significantly.

Our broker/consultant strategy continues to stress further education that focuses in on-the job training and we have partnered with the Business Accelerator Program to help us in facilitating this. These training programs have resulted in stronger deal flow for both the graduates of the training programs and Millennium.

FI: Given the current economy, have you had to change the way you do business?

MP: Millennium remains strong and has a great deal of liquidity. Based on our past performance record, our financing relationships remain strong and we are poised for tremendous growth.

We remain conservative in our approach to approving debtor credits however; we have made no significant changes to our Underwriting processes.

In respect to marketing we are concentrating on rolling out direct response campaigns on a consistent basis and increasing the number of touches or follow up with new prospects in the conversion process.

FI: What do you see as the best sources of deals in today’s market?

MP: Bank referrals, direct marketing programs and Internet optimization that are geared towards educating (and not selling) the benefits of factoring.

FI: A lot of cash flow companies are struggling in this current environment, what makes Millennium different?

MP: Millennium was built with strong business practices in place and we never wavered from this philosophy. Our funding decisions were based on two strong principals – purchase verifiable invoices to credit worthy debtors. Once you move from that strategy, you can get yourself in trouble.

In addition, in times like this you need constant deal flow to replace those clients that may be struggling. Our commitment to and support of the broker/consultant network has resulted in continued sales and revenue growth

FI: Millennium is involved in several different areas. What is your core business that you seem to always go with?

MP: Factoring, Vendor Insta Pay (which is new service that we provide), and Asset Based Lending through an affiliate partner.

FI: Where can people get a hold of you to obtain more information?

MP: Michael Ponomarew, Millennium Funding, 888.652.8298 ext. 45 or mikep@millenniumfunding.com

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

MP: With the state of the economy, downsizing etc. we have noticed an influx of new people interested in pursuing a part-time or full-time career in the Factoring Industry. Through the Business Accelerator training programs (webinar and on-site) we continue to provide initial and advance industry training and support to these individuals. Initially, the directors of Millennium Funding came through the industry as consultants. We understand what it takes to be successful and we view the opportunity to work with consultants as a sense of giving back to the industry.

FI Summary:

Helping businesses raise cash through factoring account receivables is one of many cash flow categories where consultants can earn commissions by referring transactions to funding sources.

Many companies struggle over how to manage their factoring advance rate when in reality it is pretty basic.

Let’s say that you begin factoring in January. If you factor $100,000 in accounts receivable  you will immediately receive $80,000 (assuming an 80% advance rate).

That is $80,000 you receive up front. The remaining $20,000 is held in ‘reserve” by the factoring investor.

In February you factor another $100,000 of invoices and obtain another $80,000 advance.

Also in February the January invoice pays and you receive the January ‘reserve” minus the factor fee (we will say 3%).

So now, in February, you have received $80,000 advance AND $17,000 from the previous month’s ‘reserve” for a total of $97,000.

Going forward you will continue to net the same each month assuming payments are made on time and you continue to factor.

In a nutshell it is only the first month that does not give you the full amount. But keep in mind; you would not have realized that full amount until your customer paid you (in full). With factoring you have the benefit of receiving 80% of the cash upfront rather than waiting 15 to 30 days, or more, for payment from the customer.

With the recession and tightening credit markets the timing couldn’t be better to be part of the Factoring Industry than right now!

I recently stumbled on an article from The Secured Lender Dec. 2008 issue that reinforces what Millennium Funding has been experiencing for the better part of the last 6 months and in my opinion there is no end in sight.

I thought it would be beneficial to share some of this article with you, as it reinforces what most of us in the industry already know – recession is good for factors!

The article, entitled Dance of the Propeller Heads, by Stephen Troy, starts off by stating:

“Factors and asset-based lenders are in an unprecedented position to capitalize on the tight credit markets right now. So much so, that this recession may just be paradise for some.”

The author further comments:

“The truth is, if you are a Purchase Order (PO) finance company, factor or asset-based lender, this recession is Nirvana. With the credit markets and the banks in crisis, the remainder of this decade, and possibly much of the next, could be the finest environment for the entrepreneur specialty-finance company.

When the banks tighten up, specialty finance companies make a resurgence to fill the void. This time the stars are all lining up in an unprecedented way. Not only have the banks tightened up, they are fighting for their collective lives, hoping to keep the doors open and the FOIC wolf at bay. This hasn’t happened since the 1980s, when there was a complete meltdown of the banking system, involving thrifts, which required federal government to step in with a $200 billion bailout. That now looks like pocket change.”

Those are powerful words and right on target. As previously reported on this site, being a Factoring Consultant is one of Yahoo’s Top 10 Professions for 2009. Factoring has become the financing tool of choice and now is your time my fellow readers to participate in the Nirvana.

You should look at these tough times in our economy to take action, ramp up your marketing efforts, spread the word and thrive. In this struggling economy it’s easier than normal to make excuses and put things off. I urge you to take action as the article states, this recession may just be paradise for some.

Take action and do the right things right. You are in the right place at the right time!

Contributing writer, Michael Ponomarew, brings with him more than 24 years of experience in entrepreneurship, marketing, and business management. Mike can be reached at mikep@millenniumfunding.com or by calling 888.652.8298 ext. 45.

Every business has cash flow needs but options are dwindling in the face of a recession.   Fortunately savvy business owners know they can still raise cash when banks say no to business financing.

It is helpful to understand why more businesses are benefiting from factoring their invoices and account receivables in 2009.

The key to many of the benefits that accompany factoring is the distinction between selling an asset and obtaining credit.

Rather than a bank loan, the business sells the right to receive payment on outstanding invoices to a factoring company (See How Accounts Receivable Funding Works for more information).  

Here are the top 10 benefits to factoring invoices:

1. Obtain Cash Without Debt
2. No Credit Limits
3. No Long Term Contracts
4. Use of Funds is Not Restricted
5. Pick and Choose What Invoices to Factor
6. Strong Financials not Required on Business
7. Available to new and non-bankable businesses
8. Avoid Extending Invoice Terms to Questionable Customers (Most Factoring Companies will Underwrite the customers ability to pay)
9. Low Factoring Fees
10. Receive Cash Fast (usually within 24 hours on established accounts)  

By not increasing debt and freeing up much needed cash, it’s easy to see why so many businesses are using factoring to pay bills, fund growth, increase sales, meet payroll, maintain a good credit rating, or take advantage of early payment discounts.  

When the business delivers goods or services to a customer an invoice is created.  The average customer or debtor may wait 20, 30, or even more days, before paying the invoice.  Rather than wait for payment, the business can receive an immediate advance on the face amount of the invoice from the factoring company.

The factoring company issues the advance to the business and keeps back a portion in reserve.  When the invoice is paid the reserve is released to the business, less the factoring fee.  There is no interest or loan fee charged as the process involves the assignment of an invoice rather than the creation of debt.

Here is an example of how accounts receivable funding works:

• Invoice Amount Customer owes Business  = $1,000
• Advance Rate Paid to Business (Assumes 80%) $800
• Reserve Held By Factor (Assumes 20%)  $200

Invoice paid in 30 days

• Fee Deducted from Reserve (Assumes 2.5%) <$25>
• Balance of Reserve Paid to Business $175
• Total Amount Received by Business $975

The amount of the advance, reserve, and factoring fee can vary by industry, customer strength, and how long it takes the customer to pay the invoice.

Some factoring companies might also charge a small one-time set up fee to the business upon acceptance (averaging $350). While the assumptions may vary from the example, they will be clearly spelled out upfront in the proposal and agreement between the business and factoring company.