Qualifying vs. Working For Your Receivable Factoring Referral Fee

What is expected of the receivable factoring referral source?

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.