Submitting a Factoring Deal (Freelance)

Deal Submission Step-by-Step

Submitting a prospective client to a factor is a relatively easy process if you, as the broker of record, have done just a little homework.  This lesson will provide you all the information you need to know to submit a deal successfully. 

If you are submitting a deal through IACFB as a “co-broker”, we need just the basic information filled out on the QUICK FORM (upper button) and we will do the rest.  If you are submitting a deal directly through a factor as a freelance broker, you should complete all areas of the COMPANY PROFILE (lower button)

Deal Submission Step-by-Step

The following is a practical step-by-step guideline that will help 
you submit your first deal to a factor.  It includes items you should review prior to submission.

• COMPANY PROFILE: Fax or email a company profile to your prospect and have them completely fill it out and sign it.  Once completed, have them return it to you via fax or email.  Make certain you have filled out the “Broker Info” on the profile so your factor is aware of who submitted this deal.  (Company profiles in PDF format are available for download in the IACFB Learning Lab)
• ACCOUNTS AGING REPORT / CUSTOMER LIST: Your factor will want to review the names of the primary customers of the prospect for credit analysis.  If possible, have your prospect send a customer list with addresses or/and an accounts receivable aging report.  An A/R aging report shows all of the currently outstanding invoices of the business.  If you do not provide this, the factor will request it from the prospect during underwriting anyway. 
• Review the Company Profile: Review the profile for completeness.  The very first item on the profile to view is the amount of accounts receivable outstanding.  There must be outstanding invoices if this is to be a prospect for factoring.  Also take notice if the prospect listed any current loans or any tax liens outstanding.  If these are present, call the prospect to get additional information.  These are potential deal breakers and its best to get to the bottom of them early.  If there is a 
  

  Tax Lien Outstanding:  Find out the approximate dollar balance of the arrearage and if a payment plan is in effect.  Factors must have a senior lien on accounts receivable to provide financing and an IRS lien subjects the accounts they purchase to possible levy.

  Prior Loan Outstanding:  If a prospective client has an existing business loan from a bank or similar lender, it is almost a certainty that lender has filed a lien and security interest upon the business assets.  If possible, find out how the loan is secured (what is pledged for collateral) by accessing the UCC database.

• LOCATE A FACTOR: If the company profile is completed and there does not appear to be any “deal breakers” evident, locate a factor in your database that you feel is suitable to handle this type of transaction (i.e. industry or deal size).  Contact the factor and ask to speak to someone in business development that can handle a “brokered” transaction.  You will be connected to a principal of the firm or to a BDO (Business Development Officer).
• INTRODUCE YOURSELF: Introduce yourself and tell your contact that you have a deal you would like to submit.  Ask if they would please email a Broker’s Agreement for you to execute.
• Review the Broker’s Agreement: There are basically three (3) areas of primary importance on any standard factor’s Broker’s Agreement.

  Commission Rate:  this will usually be either 10%, 12.5% or 15% percent of the factoring fees earned but there are also some pretty “exotic” structures out there.  Beware of broker agreements that pay based on “funds employed” as those pay based on the advance amount and may be less than a standard industry rate.

  Residual Life-of-Account Payment:  The vast majority of all factors pay for life of the account.  A very few pay for only one year.  Make certain the factor pays for account life.

  No Charge-Backs:  There should be no provision for charge-backs against the broker in the event the factor-client relationship fails.

  If the Brokers Agreement is acceptable (and virtually 100% are), sign the agreement and return it to the factor or BDO.  Always have a signed Broker’s Agreement in hand before you send in the company profile.  This tends to be a very honorable industry, but there are always exceptions.

• SEND IN YOUR DEAL & PAPERWORK:  Once you have a signed agreement, send in the company profile and other documents if you have any. 

• CONFERENCE CALL: On the cover page, ask about the BDO / factor’s availability for a conference call with the prospective client.  Work with the times provided and set up a conference call between yourself, the prospect and the factor.  On the call, introduce the prospect to the 
  factor or BDO.  Then step out, listen, and learn.
• DEAL FINALIZATION: If the factor accepts the deal, you are done.  The factor will close the deal, issue contracts, and begin the financing.  There is nothing more for you, as the referrer, to do other than collect commission checks.
• BACK TO WORK: NOW…go find another five prospects!

Common Submission Mistakes

As you should now know, deal submission in factoring is deceptively simple but there are several very common mistakes made by “newbie” brokers and they almost always involve identifying the type of financing needed.  As a new freelancer, you will understandably be excited when you get your first completed company profiles, but don’t let your excitement allow you to make any of the following mistakes.

• SIMULTANEOUS SUBMISSION: As an expert consultant, you always want to refer your clients to the right factor and get them a “good deal”.  Never, however, fax or email simultaneous submissions to different factors at the same time.  Simultaneous submissions are very much frowned upon in the industry and if discovered, will cause most factors to simply walk away from the deal.  Brokers should choose a factor carefully and then let that factor do its initial underwriting to either accept or decline the deal.  The industry is very competitive from a fee standpoint and if you have chosen a factor in the right niche area and your client qualifies, there will be no need for any subsequent submissions.
• KNOW THE DIFFERENCE BETWEEN FACTORING AND CONTRACT FINANCE: We’ve already discussed this in the previous chapter but here it comes again.  The biggest mistake made by industry neophytes is the inability to know the difference between a financeable FACTORING deal and CONTRACT finance which involves no invoice but the need for what is termed mobilization money to get a project started.