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)
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.
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.
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.
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.