Invoice Factoring & the Many Misconceptions.

Readers please understand this is for the business’ that cannot get a bank loan.

One of the most common statements I hear people make is that factoring is more expensive than a bank loan. Not only is this like comparing the old saying of apples to oranges but that is exactly the case.

To begin with if a company can qualify for adequate financing from a bank and that is the best financial option for that company then that is obviously what needs to be done so no need even arguing the moot point. If a company is unable to get adequate financing from a bank then let’s take a look at the difference in the two.

1st. Factoring is not debt financing, you do not borrow money like you would from a bank. A factoring company actually purchases the invoice from your company, so the invoice is an asset you are selling. These invoices are obviously purchased at a discount so with that in mind it should not be compared to an interest rate from a loan or line of credit.

This is how most people figure invoice factoring.

As an example some people will take the factoring fee, we will use 3% on 30 days for an example. 3% a month X 12 is 36% a year. That is like saying to a company that offers 2% net 10 discounts for early pays. With this same comparison you have about 36 10 day periods in a year so with 2% net 10 X 36 you have 72% a year. So as you can see the formula of comparing a discount to an interest rate gives you the wrong formula.

 2^nd   This to me is the missing quotient. .

    You own a company that is currently doing $500k a year in business. This is a small business. This young company has a great product and a profit margin of 30% but does not have the working capital to expand. With the proper working capital they may go nationwide. They decide to go with factoring. They are given a rate of 2% and as usual people say my god 24% per year, you’re crazy.

    Let’s take a look: They are now working with a 28% profit margin down from 30%. In the course of one year they are now doing $2 million a year in business.

    Question: Would you rather have 30% and still be struggling or 28% with unlimited growth?

   3rd Turnaround time for approval for funding from a bank can be long and painful. The bank has to get approvals and the underwriting has many hoops you have to jump through. With factoring you can get an account open and receive funding in as little as a week and then on future invoices you can receive funding the same day. Plus if you bring on additional approved customers you get funding on them just as fast.

4rd A bank typically wants to see at least 2 years in business and also requires you to have additional collateral along with your invoices along with a personal guarantee. A factoring company can provide funding to start-up companies as long as their customers are credit worthy and all that is required as collateral is the accounts receivable and some factoring companies do not require a personal guarantee.

5th A factoring company also offers additional services. Unlike a bank a factoring company has a day-in, day-out relationship with its clients. They are constantly monitoring the accounts receivable and collections. They offer credit screening for potential new customers for your company and they provide detail up to date aging reports to help you get a better handle on your receivables aging. A factoring company is continuously advancing new funds as well as collecting outstanding invoices and your credit availability continues to grow with your business with new accounts.

So in closing the real question is not factoring being more expensive than a bank loan, it is obvious now that the two cannot be compared so that leaves us with looking at the benefits of factoring vs. a bank loan.

With factoring you never have to worry about out growing your line of credit or burning through that loan and finding yourself with debt on the books and needing more working capital only to find the bank is max out on what they can allow. With factoring each time you bring on a new approve customer you have access to additional capital so by using a factoring service your credit line grows with your company.

Plus if you are unable to fulfill jobs or orders due to inadequate working capital and factoring offers you the cash flow for this I can assure you the factoring discount is far less that it would be for you to miss out on that business entirely because of inadequate funding.

Howard Hill

Pres. HRH Funding Solutions

http://www.hrhfundingsolutions.com

hhill@hrhfundingsolutions.com

856-690-1695

The Role of the Factoring Broker

The Role of an Invoice Factoring Broker.

Up Dated.. 02/25/12                                                                                                                  

Do you qualify as a broker?

This is an update on my earlier article.

In my years as a Broker trainer & mentor I have learned much about people, their qualities, strong points, and background. Most importantly background.

Strong quality’s for being successful:

 A sales background will qualify you for many of the following A person that knows how to approach people.. You know how to connect with your mentor quickly. We are never done learning. Weak points:  A factory worker. One who has never been in a management position? One who is a follower not a leader? One who is not afraid to talk to people?

Example: I taught this person factoring, built them a website. He called me a month later and told me he received a call from a client wanting to know about setting up a factoring arrangement in transportation, simple enough. The broker called me to ask if we do that,,,Duhh..He never read his own website. He did no networking, afraid. He basically did nothing. I felt as if all of my time was wasted. The success rate of teaching may be 3 out of 20.            This is why I prefer Mentoring.           I am at the point where I can quote numbers and be right on the money. I know many factors and Purchase Order Funders along with their numbers & qualifications, what they charge.   Why? I screwed up enough that I have learned much.

Nothing I mentioned above will work if you do not have the perseverance and patience. Of course we now have social media to deal with. PLEASE do not ignore tweeting daily or writing articles. And of all things have your website optimized. The more info you can offer the better, 10 pages and up.

Brokers: PLEASE if you have a deal you’re not sure what to do with post your question on LinkedIn immediately. You will have an answer immediately.

Listen intently on your conf. calls with factor rep. and client, this is where you learn.

           A broker’s role and level of involvement varies according to the factor handling the account and the brokers own abilities. A good broker will expertly guide you through the entire process and direct you to the right factor early on. They will know which factors are more likely to accept you as a client, how much different factors charge and how long the approval process will take.

     One mistake many brokers make is telling their client up front that they are a broker. This is where you can lose them. This creates a real problem early on. Why, because you don’t know squat if you have never completed a few deals, had a few turned down. At this point you should be feeling more confident.   You answer this truthfully. Then explain you can be of more help and why.

This becomes very easy if you understand the industry and can explain the process fully without stumbling, once you stumble the questions come or they hang-up. But the trick is to be confident and knowledgeable. I can answer 90% of any questions; this is where they are sold. When I send the application and your name is not on it, I have no problem they fill it out and get it back. Why, because I have created a relationship first. I would go through their situation, ask the right questions and have the ability to answer all at least most of the time.  

            Brokers will usually walk you through application process. As questions arise, brokers seek out the answers for you. An experienced and well educated broker will be able to package a transaction for a factor saving the factor hours of legwork. The role of the broker is to expedite the factoring process for you and for factoring companies by acting as the middleman. When done right you can really come out ahead in terms of saving time and avoiding stress when using a factoring broker.

A well trained broker will place you with the right factor. Not all factoring firms are willing to take on all types of businesses. As a matter of fact most factoring companies focus on specific industries and specific levels of risk. Many factors have niche markets they specialize in. For instance there are factors that do manufacturing & wholesalers but do not do construction. Other factors just do medical. Some are in the garment industry and others do not touch it. Some do business only in the US and others do international business. These are all good reasons to contact a good broker; they can save you time and money.

Broker commissions are paid directly by the factor as a cost of marketing. When you use a broker the factor does not charge you more. The fee you pay is the same as if you contacted the factor yourself. You see, if the broker does all of the legwork the factor willingly takes a smaller cut of the deal so there is money left over to pay the broker. So as you can see, using a broker does not cost you any more then contacting a factor directly, they can save you time and set you up with the proper factor for your situation. A knowledgeable broker will have a good relationship with many factors and should understand the different nuances of the factors he’s working with. I myself think of myself as working for my clients first and creating a relationship of trust. I can collect more information by giving the client all the time he needs and as much information as they ask for, this is good for all parties, then passing this information to the proper factor and creating an introduction.

   Brokers remember you are an independent business person and your first priority is satisfying your customer’s needs. I have fired many factors from deals. If they cannot move quickly and keep me in the loop then I do not work with them.

Factoring brokers represent a large portion of business for most factors. They are the sales force “so to speak, making direct contact with business’ in their part of the country.

From a factors perspective, working with brokers is usually beneficial. They bring in business that the factor otherwise would have missed and provide real insight into the client’s needs.

To sum up a good factoring broker can be an asset, since he has the ability to work with many factors and can also provide other services that the factor does not.

It is easy to find a broker if you are sold on the brokering concept you will not have a hard time finding a broker who will want to work with you. Our first suggestion would be to ask around for a referral. It is always safer to network and count on someone who has a proven track record with one of your peers.

Beware: Anyone can call themselves a broker and yet they do not have a clue on how to sell invoice factoring. I have personally had brokers contact me on what they hope is a factoring deal (most of these

Note to New Brokers: Remember this; you will not make it in this business if you do not have a mentor. Without a go to person you will screw up in your presentation and on answering questions for your client. There IS a learning curve. Do not give up; it’s one deal at a time. Listen intently on your conf. calls with factor rep. and client, this is where you learn.

A broker’s role and level of involvement varies according to the factor handling the account and the brokers own abilities. A good broker will expertly guide you through the entire process and direct you to the right factor early on. They will know which factors are more likely to accept you as a client, how much different factors charge and how long the approval process will take.

Brokers will usually walk you through application process. As questions arise, brokers seek out the answers for you. An experienced and well educated broker will be able to package a transaction for a factor saving the factor hours of legwork. The role of the broker is to expedite the factoring process for you and for factoring companies by acting as the middleman. When done right you can really come out ahead in terms of saving time and avoiding stress when using a factoring broker.

A well trained broker will place you with the right factor. Not all factoring firms are willing to take on all type businesses. As a matter of fact most factoring companies focus on specific industries and specific levels of risk. Many factors have niche markets they specialize in. For instance there are factors that do manufacturing & wholesalers but do not do construction. Other factors just do medical. Some are in the garment industry and others do not touch it. Some do business only in the US and others do international business. These are all good reasons to contact a good broker; they can save you time and money.

Broker commissions are paid directly by the factor as a cost of marketing. When you use a broker the factor does not charge you more. The fee you pay is the same as if you contacted the factor yourself. You see, if the broker does all of the legwork the factor willingly takes a smaller cut of the deal so there is money left over to pay the broker. So as you can see, using a broker does not cost you any more then contacting a factor directly, they can save you time and set you up with the proper factor for your situation. A knowledgeable broker will have a good relationship with many factors and should understand the different nuances of the factors he’s working with. I myself think of myself as working for my clients first and creating a relationship of trust. I can collect more information by giving the client all the time he needs and as much information as they ask for, this is good for all parties, then passing this information to the proper factor and creating an introduction.

If the broker does not pass you on to the factor during the application process then ask the broker how the invoices are to be funded. If they are vague or not as forthcoming as you would expect, then you might want to look for another broker or call the factoring company directly.

Factoring brokers represent a large portion of business for most factors. They are the sales force “so to speak, making direct contact with business’ in their part of the country.

From a factors perspective, working with brokers is usually beneficial. They bring in business that the factor otherwise would have missed and provide real insight into the client’s needs.

To sum up a good factoring broker can be an asset, since he has the ability to work with many factors and can also provide other services that the factor does not.

It is easy to find a broker if you are sold on the brokering concept you will not have a hard time finding a broker who will want to work with you. Our first suggestion would be to ask around for a referral. It is always safer to network and count on someone who has a proven track record with one of your peers.

 Good luck in your future ventures.

Note to New Brokers: Remember this; you will not make it in this business if you do not have a mentor. Without a go to person you will screw up in your presentation and on answering questions for your client. There IS a learning curve. Do not give up. One deal at a time gets it done.

 Howard Hill

HRH Funding Solutions     Up_ Dated  02/25/12           

Business Finance Alternatives

Alternatives to bank financing

Invoice Factoring/Po Financing

Many business owners who need financing start their financing search by looking for a business loan or a business line of credit. Although business loans and lines of credit are well known products, they are very hard to get. And in reality, few business owners actually manage to get them.

In certain instances, invoice factoring may be a better and easier alternative to obtain,and can be set up and received in 7 days,can your bank do that? There are three conditions that can determine whether factoring is a better alternative than a business loan:

1. Are your client’s slow payments hurting you? Do they take up to 60 days to pay?

2. Are you turning away bigger sales because you lack working capital?

3. With the right financing, does your business have significant growth potential?

If you answered yes to these questions then chances are that factoring your invoices will be better for you than more traditional bank financing. Invoice factoring provides you with financing based on your invoices, eliminating slow payment cycles and providing you with money to pay rent,meet payroll and expand your business.

Since factoring is tied to your sales potential, it does not have the arbitrary use limits that business loans have. The more your business grows, the more financing you qualify for. This makes it an ideal product for businesses that have significant growth potential.

Factoring is easy to use. Once you have invoiced your customers you send a copy of the invoice to the factoring company. The factoring company, in turn, advances you up to 90% of your invoice and waits to be paid by your client. Once paid you are forwarded the remaining 10% minus our fee. So there is no new debt and nothing to pay back. Once your client pays the invoice, the transaction is settled.

In effect, by financing your invoices you eliminate the slow payment problem. You accelerate your cash flow, enabling you to pay your obligations, take new opportunities and grow your company.

In terms of cost, factoring is a very competitive product. Factoring fees range from 1.5% to 4% per month, rates are based on volume you factor per month making it an affordable product. If you own a business that is growing and you need financing, be sure to consider invoice factoring.

Invoice factoring has been gaining popularity as a tool to finance growing businesses. It is a solution that accelerates payments from slow paying clients, freeing up cash flow and allowing companies to grow. By eliminating the uncertainties of when they’ll be paid, business owners can use factoring to stabilize their business and put it on a growth path.

Howard Hill

President  of HRH Funding Solutions.

Business Finance Alternatives

Alternatives to bank financing

Invoice Factoring/Po Financing

 

Many business owners who need financing start their financing search by looking for a business loan or a business line of credit. Although business loans and lines of credit are well known products, they are very hard to get. And in reality, few business owners actually manage to get them.

 

In certain instances, invoice factoring may be a better and easier alternative to obtain,and can be set up and received in 7 days,can your bank do that? There are three conditions that can determine whether factoring is a better alternative than a business loan:

 

1. Are your client’s slow payments hurting you? Do they take up to 60 days to pay?

 

2. Are you turning away bigger sales because you lack working capital?

 

3. With the right financing, does your business have significant growth potential?

 

If you answered yes to these questions then chances are that factoring your invoices will be better for you than more traditional bank financing. Invoice factoring provides you with financing based on your invoices, eliminating slow payment cycles and providing you with money to pay rent,meet payroll and expand your business.

 

Since factoring is tied to your sales potential, it does not have the arbitrary use limits that business loans have. The more your business grows, the more financing you qualify for. This makes it an ideal product for businesses that have significant growth potential.

 

Factoring is easy to use. Once you have invoiced your customers you send a copy of the invoice to the factoring company. The factoring company, in turn, advances you up to 90% of your invoice and waits to be paid by your client. Once paid you are forwarded the remaining 10% minus our fee. So there is no new debt and nothing to pay back. Once your client pays the invoice, the transaction is settled.

 

In effect, by financing your invoices you eliminate the slow payment problem. You accelerate your cash flow, enabling you to pay your obligations, take new opportunities and grow your company.

 

In terms of cost, factoring is a very competitive product. Factoring fees range from 1.5% to 4% per month, rates are based on volume you factor per month making it an affordable product. If you own a business that is growing and you need financing, be sure to consider invoice factoring.

 

Invoice factoring has been gaining popularity as a tool to finance growing businesses. It is a solution that accelerates payments from slow paying clients, freeing up cash flow and allowing companies to grow. By eliminating the uncertainties of when they’ll be paid, business owners can use factoring to stabilize their business and put it on a growth path.

 

 

Howard Hill

 

President  of HRH Funding Solutions.

Invoice factoring vs. bank loan

 

Invoice Factoring

 

vs. Bank Loan

 

The Pros, the Cons and the hidden factor.

 

How is your business operating? Do you have good cash flow? Are you able to go after larger contracts, can you afford to take them on, add employees, and increase production?

 

What do you do when you receive your first large PO? Can you afford production and shipments? Do you have the cash flow?

 

Does Your Bank offer you anything?

 

Many business owners who need financing start their financing search by looking for a business loan or a business line of credit. Although business loans and lines of credit are well known products, they are very hard to get. And in reality, few business owners actually manage to get them.

 

In certain instances, invoice factoring may be a better and easier way to obtain alternative financing. There are three conditions that can determine whether factoring is a better alternative than a business loan:

 

1. Are your clients’ slow payments hurting you? Do they take up to 60 days to pay?

 

2. Are you turning away bigger sales because you lack working capital?

 

3. With the right financing, does your business have significant growth potential?

 

If you answered yes to any of these questions then chances are that factoring your invoices will be better for you than more traditional bank financing. Invoice factoring provides you with financing based on your invoices, eliminating slow payment cycles and providing you with money to pay rent meet payroll and expand your business.

 

With Invoice Factoring you are not incurring any debt, it’s not a loan, there’s nothing to pay back, and your credit score will improve. We lien only your receivables.  This allows you control over all of your assets. The more your business grows, the more financing you qualify for. This makes it an ideal product for businesses that have significant growth potential. Since factoring is tied to your sales potential, it does not have the arbitrary use limits that business loans have.

 

The Factoring Industry does not work through banking laws. We are a self-regulated Industry which allows us to be creative when need be to fit your company’s needs. We do not work in a box, we punch out the box. We can have you set-up in one week. …..How long does your bank take for approval, about the time it takes you to go under.

 

In terms of cost, factoring is a very competitive product. Factoring fees range from 1.5% to 3% per 30 day period, rates are based on volume you factor per month & risk making it an affordable product. If you own a business that is growing and you need financing, be sure to consider invoice factoring.

 

Unlimited credit line.

No new debt.

Nothing to pay back.

Once you create a history with us your benefits expand exponentially.

Daily access to your account and your contact.

We become your bank. If you need extra cash this week just call you will have it in 24 hrs.

 

The biggest complaint from clients…WOW the cost.

 

THE MISSING FACTOR! YOU’RE GROWTH

 

90% of companies that call us need growth capital. If your profit margin is 35% and you are currently doing 100k per month and your potential is 500k per month, would you rather have 35% 0f 100k or 32% of 500k ? I do not think I need to run these numbers for you.

 

Good Luck in your growth.

 

Howard Hill

 

 

 

http://www.hrhfundingsolutions.com

The role of the factoring broker

A brokers role and level of involvement varies according to the factor handling the account and the brokers own abilities. A good broker will expertly guide you through the entire process and direct you to the right factor early on. They will know which factors are more likely to accept you as a client, how much different factors charge and how long the approval process will take.

Brokers will usually walk you through application process. As questions arise , brokers seek out the answers for you. An experienced and well educated broker will be able to package a transaction for a factor saving the factor hours of legwork. The role of the broker is to expedite the factoring process for you and for factoring companies by acting as the middleman. When done right you can really come out ahead in terms of saving time and avoiding stress when using a factoring broker.

A well trained broker will place you with the right factor. Not all factoring firms are willing to take on all type business’. As a matter of fact most factoring companies focus on specific industries and specific levels of risk. Many factors have niche markets they specialize in. For instance there are factors that do manufacturing & wholesalers but do not do construction. Other factors just do medical. Some are in the garment industry and others do not touch it. Some do business only in the US and others do international business. These are all good reasons to contact a good broker, they can save you time and money.

Broker commissions are paid directly by the factor as a cost of marketing. When you use a broker the factor does not charge you more. The fee you pay is the same as if you contacted the factor yourself. You see, if the broker does all of the legwork the factor willingly takes a smaller cut of the deal so there is money left over to pay the broker. So as you can see, using a broker does not cost you any more then contacting a factor directly, they can save you time and set you up with the proper factor for your situation. A knowledgeable broker will have a good relationship with many factors and should understand the different nuances of the factors he’s working with. I myself think of myself as working for my clients first,. and creating a relationship of trust. I can collect more information by giving the client all the time he needs and as much information as they ask for, this is good for all parties, then passing this information to the proper factor and creating an introduction.

If the broker does not pass you on to the factor during the application process then ask the broker how the invoices are to be funded. If they are vague or not as forthcoming as you would expect, then you might want to look for another broker or call the factoring company directly.

Factoring brokers represent a large portion of business for most factors. They are the sales force ” so to speak, making direct contact with business’ in their part of the country.

From a factors perspective, working with brokers is usually beneficial. They bring in business that the factor otherwise would have missed and provide real insight into the clients needs.

To sum up a good factoring broker can be an asset, since he has the ability to work with many factors and can also provide other services that the factor does not.

 

It is easy to find a broker

If you are sold on the brokering concept you will not have a hard time finding a broker who will want to work with you. Our first suggestion would be to ask around for a referral. It is always safer to network and count on someone who has a proven track record with one of your peers.

Beware: Anyone can call themselves a broker and yet they do not have a clue on how to sell invoice factoring. I have personally had brokers contact me on what they hope is a factoring deal ( most of these brokers are in real estate) and some will try to do anything and everything. Here is my point, in 6 years in this industry I have never completed a deal from not one of these referrals, the deal was 50/50 on commissions. I have had dozens come across my desk, never closed one, so make sure your broker specializes in factoring and PO Funding, just Google them. Good luck in your future ventures.

Note to New Brokers: Remember this, You will not make it in this business if you do not have a mentor. Without a go to person you will screw up in your presentation and on answering questions for your client. There IS a learning curve. Do not give up. One deal at a time. Listen intently on your conf. calls with factor rep. and client, this is where you learn.

Howard Hill 7/13/2011

HRH Funding Solutions

http:/www.hrhfundingsolutions.com

Great service & knowledge: HRH Funding Solutions