Additionally, I was told that this bath tub had no plug in the drain, so water was continually escaping from it.

The riddle was finally completed with the question, “How therefore can you maintain water in half the tub with the constant outflow of water?”

The answer was obvious once I thought about it……I have to make sure that water was steadily and continually running into the tub from the faucet at the same rate by which it was exiting down the drain!

With that thought in mind, we now see that sales/marketing is an ever moving target. The factoring client that you have securely established with ABC Factoring Company today may have just been offered a factoring rate less than he is paying now, and will be gone tomorrow. If he moves to that new finance vehicle, so moves your commission as well.

Your pipeline of new transactions is vital to your financial survival as a factoring broker!

The question then should be asked; do I want to pursue the “elephant” sized deals that will occupy huge amounts of time, require highly competitive pricing and have less than a 10% chance of closing?

Think of that bathtub getting lower and lower in water volume. The answer by now should be obvious. The smaller less competitive, higher priced (more commission) transactions are truly the low hanging fruit. Let’s look at the math.

Suppose you manage to bring to a factor a client doing $1MM in monthly sales and he is eager to factor the entire portfolio of invoices. A deal of this size is not a slam dunk to underwrite as the funder is going to make sure all “i’s” are dotted and “t’s” are crossed.

Where will a transaction like that be priced?

On a discount basis, the fee certainly cannot be any higher than perhaps 1.25% to 1.375% on a monthly basis (probably pro-rated to a daily discount fee). So, you’ve consummated a one million dollar deal and you are getting (based on a 10% commission of gross fees) $1,375.00 in monthly commissions. The factor probably took the better part of a month to close the transaction.

Suppose you provide the factor with the same monthly volume of business, however the source was 20 transactions of $50K per month. Transactions of that size are quick to close, and can easily be done in two weeks. Where is the factor pricing a deal of that size? Even if the factor was very aggressive in pricing, it would not be too far from about 2.75% to 3% monthly discount fee (very aggressive for a deal that small, however I am trying to make a conservative point). The math then works out to be $150 per deal for the broker X 20 deals = $3000 in monthly commissions.

Now let’s look at the bathtub losing its water…..if your elephant client goes down the drain (which is highly likely due to the competitive nature of the transaction and other companies being very interested in swiping that deal) you’ve lost the full $1,375 per month in commissions. However in order to lose the same $1,375 per month with the 20 smaller deals you would have to see approximately 9 of your clients go through the bathtub drain.

How likely is that?

Smaller companies find it almost impossible to acquire financing, and they tend to stay with factoring much longer! Oh, and by the way….even if you did lose the 9 deals, you would still have remaining income of $1,625 per month, still more than the one million dollar client would have provided in revenue for your business.

As a factor, I look at my business that way as well. By now readers may know that Xynergy Healthcare Capital focuses on medical factoring. My brokers readily ask; Fred, why not hospitals?

Putting my risk per transaction, and my exposure to high concentrations in the larger clients (the hospitals), I do not see the risk/reward relationship tilting in my favor. My approach has always been and will continue to be “fast nickels rather than slow dimes.” When I put $2MM out in the street for factoring transactions, I would rather have 10 to 20 (or even more) factoring clients. My fees are larger my risk is smaller and more manageable, and my brokers are much happier (more $$). Factoring Brokers close more deals, and ultimately, that’s the name of the game! As always I welcome your comments.

About the Author: Fred Leder has been actively involved in the specialized healthcare financing niche for over a decade. Xynergy Healthcare Capital LLC is a factoring organization focused on small to mid-sized healthcare providers nationwide. For more information contact Fred at (954) 489-6460 or by email at fleder@xynergyhealth.com.

If you can’t think of any off hand it’s because it hasn’t happened. The most recent example of such inefficiency has been the “cash for clunkers” program.

This program started almost two years ago (July 2009) and many car dealerships are still awaiting payments! The government stepped into the healthcare industry some 45 years ago and things have regressed to what we have today; and inefficient, overregulated, underfunded, bureaucratic nightmare soon to be encumbered with more regulations and less financial infusion….results…medical professionals can’t get paid efficiently or sufficiently.

Borrowing and/or Factoring are the only solutions to get cash flow moving.

On a grandiose scale, factors and other finance organizations seek to bring on clients with a monthly funding facility requirement well over one million dollars. Wells Fargo, CIT, Textron GE, and other huge commercial lenders have their “pick of the litter” when it comes to these higher volume potential clients (borrowers). In many occasions medical providers generating over one million dollars per month in receivables have credit profiles sufficiently strong for a bank, and if not, certainly strong enough for a non-bank asset based lender. Therefore the question can be posed; as a financial intermediary, factoring broker, referral agent..etc…how can I find the best way to participate in the ever-growing healthcare finance market?

Flying way below the radar of the massive lenders cited above, are the modest sized medical providers such as durable/home medical equipment providers, home health providers, single or multiple physician practices, imaging centers, dialysis centers, labs, ambulatory surgery centers, drug dependency and rehabilitation centers, physical rehabilitation centers, urgent care clinics…and a plethora of others. These modest healthcare providers ARE the opportunity to develop a good business as a factoring broker referral source. Who among the finance community would entertain a factoring transaction as small as $25,000 per month in volume, up to $400,000 (or higher)? In the highly specialized field of healthcare finance, Factors with sweet-spots of $100K-$300K are very few.

We at Xynergy Healthcare Capital LLC (XHC) have been in the healthcare factoring industry for over a decade and our team members have been some of the first pioneers in healthcare factoring. XHC is a new name, but, with highly experienced professionals.

Focusing on the modest sized providers as listed above, XHC wants to be your first call when you’ve found a prospect. You find the interested provider, set up the conference call and XHC takes it from there. You can participate as little or as much in the process as you want….but the industry pro’s at XHC will do that first conference call to correctly and positively explain the process and qualify the prospect.

No up-front fees, all underwriting costs taken from first funding. Factoring Broker kits are always available. Stepping into a new market may be uncomfortable; however XHC will hold your hand through it all. This industry is ready for explosion, join in with us.

For more information contact Fred Leder of Xynergy Healthcare Capital at (954) 489-6460 or by email at fleder@xynergyhealth.com.

About the Author: Fred Leder, a name well recognized in the healthcare finance industry, has been actively involved in this highly specialized niche for over a decade. Following fifteen years as a fixed income securities trader with a regional securities dealer firm. Leder joined and helped build Sun Capital HealthCare Inc. in Boca Raton Florida, and remained there over ten years until starting Xynergy Healthcare Capital LLC in early January of 2011. He has been guest speaker at numerous medical industry conferences, to include, The Florida Medical Association, Wealth Management Group of the Florida Bar Association, Hospital Finance Management Association, MedTrade, Florida Association of Certified Public Accountants, many ACFA Conventions, and regional training and educational seminars.

Fred was a visiting instructor for The American Cash Flow Institute for over 5 years and has lectured at numerous Cash Flow industry conventions discussing everything from marketing techniques to the details of medical and government factoring.

Fred has also lectured at medical and financial industry events such as Medtrade, HFMA, Florida Medical Association’s Asset Protection seminar, Foster & Dunhill’s International Asset Protection Seminars, and numerous ACFA chapters throughout the country. Fred Leder can be reached via email at fred@suncapitalinc.com or by calling 1 (800) 880-1709.