The subject of double-brokering opportunities has been a hotly debated topic since I joined the industry, over a decade ago. The gist of the argument is as follows: factoring companies believe that brokers should not “shop” opportunities and place them with multiple factoring companies. On the other hand, many (but not all) brokers want to be able to place deals with two or more factors. Let’s look at both side of the argument. Summary: The factoring company point of view For several reasons, most factoring companies don’t like brokers placing the same lead with multiple factors. First and foremost, it increases their competition. It’s natural and understandable that companies don’t like the fact that they have to compete against other … [Read more...]
Should Your Factoring Company Also Offer Purchase Order Financing?
Recently, I have been writing articles about brokers who want to start factoring companies. As I have mentioned previously, the factoring field is very competitive, so you have to be highly selective when you choose your market niche. Some new factoring companies have taken this strategy a step further and differentiate themselves by adding niche products such as purchase order (PO) financing. This article discusses whether this is a good strategy. A brief purchase order financing tutorial Basically, purchase order financing helps companies that have a purchase order and need funding to fulfill it. In principle, the product sounds great. However, it has a number of restrictions. Specifically, it can be used only for transactions … [Read more...]
6 Tips For New Factoring Companies
In recent months I have been writing about brokers who want to start their factoring companies. This is an important topic for brokers since many want to move to the direct funding side of things. Unfortunately, most have unrealistic expectations about their chances of success. They like to focus on the potential positive aspects of the move, such as higher revenues. But they often ignore the obvious risks, such as losing principal or going out of business. Here are six tips that will help you survive your first year as a factor. 1. Double your marketing budget One of the toughest things in this business is getting clients. Due to intense competition, the cost of acquiring a client is very high. New factoring companies often underestimate … [Read more...]
How To Select A Market For Your Factoring Company
As far as I can tell, every factoring company is an expert and is also the best in the market when it comes to transportation, staffing, and security guard deals. Everyone offers the best terms, service, and turnaround times. At least, that is what they claim. Unfortunately, from a client’s perspective, there is little difference between factors. They all offer similar plans with similar benefits. So, factoring companies fight tooth and nail for every deal in these industries. However, every year, new factoring companies flock to those industries because they are coveted by factoring companies. In doing so, they face brutal competition from more established and better funded factoring companies. They usually lose. In reality, they … [Read more...]
How To Finance Your New Factoring Company
In my previous article, we discussed whether brokers should start their own factoring companies. In this article, we discuss how to finance a factoring company, should you decide to start one. While owning a factoring company can be very rewarding, it’s also very risky. And most owners make their riskiest decision before funding their first deal – the decision on how to finance their own company. The wrong decision could wipe you out financially and have long-lasting repercussions. Make this decision very carefully. There Are Many Ways To Fund A Factoring Company. Each way has varying degrees of risk. How you proceed depends on your risk tolerance. For example, when I first financed my factoring company, I made two upfront decisions. … [Read more...]
Should Brokers Start Their Own Factoring Companies?
Most brokers who join the factoring industry expect to eventually own a factoring company. They plan to start as brokers due to the lower cost. This approach allows them to get some revenues and experience, with the hope of eventually becoming a full-fledged factoring company. This strategy is fine, as long as you realize that running a factoring company is completely different from running a brokerage. The costs, needed skill set, risks, rewards, and challenges are very different. Do you have the capital? The first question to ask yourself is if you have sufficient capital to start factoring accounts. This attainment is not as easy as it sounds. Obviously, you need enough capital to service your clients. This simple table gives you … [Read more...]
How to Set Yourself Apart from Other Factors and Brokers
As far as I can tell, every factoring broker and every factoring company claims to have exceptional customer service, that they can fund clients quickly, and that their prices are the most competitive in the market. Everybody says and focuses on that almost exclusively. Because of this, factoring companies look the same from the outside. It’s easy for prospects to see how brokers market themselves and conclude that all factoring companies are the same – basically a dime a dozen. Is factoring a commodity? Let’s look at the other side of things. Most brokers and factors complain that prospects often don’t treat them well: prospects negotiate harshly, shop incessantly for better terms, and threaten to leave for a competitor at the … [Read more...]
Top 3 Mistakes That Factoring Intermediaries and Brokers Make
Although factoring is not a seasonal business, per se, it does have its high and low periods during the year. We are about to enter what is often the busiest period for the factoring industry – mid-September to mid-December. This is an important period for your business, and it’s critical that you operate efficiently in order to capitalize on as many opportunities as possible. To achieve this result, you need solid factoring partnerships in place, a well-developed sales technique, and a process to manage your sales channels and increase your closing ratios. At the same time, you must be careful to avoid these common deal-killing mistakes. Not knowing your product well enough This very common problem primarily affects newer factoring … [Read more...]
How to Finance a Demolition Company With Construction Factoring
Getting financing for a company in the construction industry is very difficult. In general, lending institutions are not comfortable providing business financing to small or midsized construction subcontractors. Demolition companies often have additional problems getting funded because many institutional lenders view them as riskier - due to the perception that they are often the first ones to do work on a site, but the last ones to get paid. The biggest cash flow problem Demolition companies, like most subcontractors, don’t get paid as soon as they complete their work. Rather, their contracts demand that the provide payment terms to the general contractor. These terms often give the GC up to 60 days to pay. Many general contractors, who … [Read more...]
How I Sell. My Preferred Factoring Sales Technique
Selling factoring services can be very challenging, especially in this environment where there is very strong competition. Not only do you have to help clients determine if factoring is right for them, you also have to show them how your solution is better for them that everyone else’s. This may sound simple, but selling factoring services in this market is very difficult. It’s a crowded market with every factoring company promoting their benefits. You can expect that most prospects will be talking to four or five different factors. One simple approach is to match what they are saying. But if you do that, you become a “me too!” factoring provider that will only get average results. So, how do you break through that barrier? How do … [Read more...]