Factoring Transactions: How To Know When To “Cut Bait”

Time is money as the expression goes and successful factoring consultants have to allocate time and resources judiciously.

Factoring Business Time Is MoneyIdentifying when a potential factoring transaction is viable for a funder to look at and discarding the ones that make no sense are decisions that need to be made regularly by consultants.

Are all factoring transactions worth pursuing? The answer to that is a resounding no. So, when and how do we “cut bait” and go on to the next?

Your front line of defense against wasting time is your initial screening of a transaction. If you get a deal summary sheet or contact and qualify the prospect directly, the proper questions can take you to the initial assessment of the transaction’s viability.

First lets examine what the five basic requirements for factoring invoices are:

1. The prospect is doing business to business, business to government (or billing a healthcare insurance carrier in the case of medical receivables)

2. The prospect offers terms on a physical invoice, no longer than 60 days to the customers he services or sells product, and that invoice must represent goods or services already provided or delivered

3. The prospect’s company is making money and has enough profit margin to accommodate the cost of factoring

4. The prospect has a need for factoring

5. Most funders will require that the prospect is a business entity other than a sole proprietor

With these basic rules in mind, you now have the basis for making some very wise and time saving decisions. You therefore must first qualify according to these five rules. There is very little (if any) flexibility in these items, so once you find that the business is servicing retail customers (individuals not businesses), or the business invoices its customer before the product is delivered, “cut bait,” that is not a viable deal. This now gives you an initial screening process.

Most consultants will, once the initial screening is done, ask for the application and the supporting documents usually accompanying the application. The completeness, accuracy, timeliness and attention to detail should tell you how motivated the applicant is.

I have found throughout my (many) years in the factoring business that the more accurate, neat and complete an application is done, the more likely the prospect is serious about getting the transaction done.

Remember rule 4 above, nothing happens in this business unless the prospect is motivated to do the paperwork and provide the documents. As much as one would like to “hope,” “anticipate,” “await,” etc…. protracted responses to requests for the required paperwork indicates mostly a casual need for the product. In this case the consultant must put a time limit on receiving everything, and inform the applicant that beyond X-date, the file will be closed. One would be surprised how that gets the “real” transactions moving and identifies the “time wasters” for you to “cut bait.”

Assuming now that the initial transactional documents are completed and submitted to the funder, the next process is the funder’s analysis of everything he/she has required to be provided. The funder will come up with on of the following three conclusions;

a) this applicant cannot be factored by anyone,
b) this deal will not work for that particular factor, or
c) it’s a go, lets do the deal!

It is very important for you to know from a time conservation perspective if the transaction is being denied for reason a) or reason b). You can certainly pursue the transaction if b) is the case but you have to “cut bait” if it’s a). Finally, if you do bring that transaction to a few more funders and “it just doesn’t work for them” also, ……. you got it…. “cut bait.”

Very often consultants are quite busy and the value of time is sometimes priceless. Treat yourself as a professional and make sure your time and resources are rewarded with closed, money-generating transactions.
Fred Leder Factoring With Xynergy Capital

About The Author:

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.

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