Factoring Prospects - Weeding out the bad to find the good video

So as you know, PRN Funding is committed to maintaining strong relationships with our factoring referral network, and we accomplish this by writing a number of informative articles and, more recently, doing some video blogs to help educate our cash flow consultants and factoring brokers. So this is the first article that I’d like to talk about. It’s basically...talks about the subject of weeding through bad factoring prospects in order to find the good. And the article basically talked about how, as cash flow consultants, it’s your job to deliver clients in need of cash flow to the appropriate funding source. And it sounds like something that’s really simple, but really it’s not always such an easy feat. So imagine this scenario – I’m sure you’ve gone through this before. You have a candidate that’s been in business for two years, they’re routinely getting paid in 45 days, they’re wanting to expand, and they’re looking for a factoring company. So you quickly call your funding sources, you find the best fit, and you refer it to them. That factoring company says, “Yes, we’re definitely interested; we’re going to give this client a call,” and you sit and wait until the next day; you get a call from the factor and they say, “Sorry, we’re no longer interested.” So if this has ever happened to you before, I know it’s gotta be really frustrating, and I’m gonna talk about some ways that you can avoid this type of situation from happening again in the future, all by asking your factoring clients three simple questions. The first question is, “Do you have any bank loans?” Because if the factoring client responds “Yes” to this question, it could have just complicated the factoring deal, and made it a little bit less desirable to the factor. Basically, when a funding, factoring company purchases invoices from a customer, they’re going to use those invoices or accounts receivable as collateral – and if this company already has a bank loan or is already working with another funding company, then it’s possible that that funding company or banking institution has already placed a lien on the accounts receivable. So basically, it’s that funding institution saying that they’re using the company’s accounts receivable as collateral to secure the loan, and it’s not available for sale. So you need to make sure that you ask this question ahead of time, because if that’s the situation, sometimes the factoring company and another funding source can come to an arrangement where one could do a buyout, or the accounts receivable could be carved out and reserved only for the factor, but at any time it’s definitely a question that needs to be asked and it affects how a factor is going to view that potential prospect. The next question to ask the potential factoring customer is, “Are you behind on your taxes?” And if they answer yes, the next question is, “By how much?” because if it’s a lot, then the factoring company’s probably going to lose interest pretty quickly. If it’s not that much, there’s some ways a factor can work around it in order to make the deal happen. But basically in a nutshell, why this is an important question to ask is because if a potential factoring customer is behind on their taxes, then the IRS discovers this, they’re going to place a lien on the company’s assets. Now, this includes both physical assets, like property or computers, things like that, and also liquid assets, which is usually, you know, bank accounts and/or accounts receivable. And, basically this is the IRS’s way of getting the business owner’s attention, that “Hey, we know you didn’t pay your taxes. We’re onto you, and if you don’t pay, then we’re going to seize this collateral that we’ve placed a lien on, and levy on those assets.” Now, if the IRS gets to that point where they do choose to levy on the company’s assets, then a factoring company can no longer fund the invoices, because essentially the IRS is trumping the factoring company’s lien. The IRS is saying, anything that this company billed out, and anything that’s owed to them, the IRS then is going to take it in order to help pay down the balance of the back taxes owed. So, a factoring company really doesn’t want to get involved in that type of situation, because they would be lending out...money and then not being reimbursed for that money. Now the final question that you want to ask potential factoring customers is, “Who do you bill?” And this is an important question to ask across the board because there are some entities that are either impossible to factor, or that are a little bit more difficult, and there’s a little bit more hoops that a factoring company’s gonna have to jump through in order to get them approved. Now I know personally, in my business with PRN Funding, we routinely turn down deals that are made payable by Medicare, and also deals that are made payable by patient pay or private pay, because essentially for the factoring model to work the best, it’s if a smaller, less established company is providing services or goods and billing to larger, more established, more creditworthy customers. This way the small business can leverage the credit that their larger customers have, and they’re able to factor the invoices based on the fact that their customers have good credit and routinely pay their invoices on time. With patient pay, it’s really hard to establish consumer creditworthiness, and Medicare is also a little bit more complicated to get things set up. The only other answer that would make a factoring company a little nervous about funding invoices for, is if that company is billing customers that take a really long time to pay. Now keep in mind, a really long time to pay could mean different things in different industries so for example, a medical staffing agency that’s getting paid in 60 days is pretty normal, whereas in another industry 60 day pay may be considered too long in order for a factoring company to take that risk. So basically, factoring brokers ask these three simple questions: Do you have any bank loans? Are you behind on your...taxes? and Who do you bill?, it’s going to save the prospect, the factoring broker, and also the funding company a lot more time on down the road, and it’s going to make the sales process and the referral process a lot easier. For more information about factoring broker news, please visit PRN Funding’s site at prnfunding.com, or visit PRN Funding’s factoring blog at thefactoringblog.com.