Factoring brokers are independent commercial finance consultantsthat are able to offer different accounts receivable financing options to businesses through their unique network of providers.
A broker will typically work for himself or herself, under an assumed corporate name that separates the brokerage from the providers. His or her clients may or may not range in business size and type, and the broker acts as the conduit between the clients and providers.
Although independent, factoring brokers are directly involved in both the supply (sourcing the factoring providers) and the demand (companies needing working cash flow.) A good factoring broker should be skilled in developing client relationships and competent in an array of alternative funding solutions, some of which include:
- Accounts Receivable Finance
- Asset-Based Lending
- Working Capital Loans
- Payroll Solutions
- Purchase Order Finance
- Equipment Leasing
- Merchant Cash Advances
- Import-Export Trade Solutions
A factoring broker typically will not have an exclusive relationship with a single provider, but will utilize a variety of factoring providers for their clients’ specific needs. Factoring providers range in the types of industries served, minimum and maximum funding amounts, and risk tolerance level. Where one client may fit within an individual provider’s requirements, another may not.
Factoring brokers will want to ensure the providers in their network are providing a high level of client and customer support, to ensure the broker’s relationship is strongly maintained with the client. Before sending referrals to a provider, a broker should be thorough in his or her provider research.
When researching a provider, a factoring broker should be able to understand exactly how the following processes work within that provider’s organization:
- How do I refer a client? Who will be my day-to-day contact?
- What is the client experience once referred? Who helps them with their questions?
- How does the underwriting process work? How long does it take? What is the approval ratio?
- How does the funding process work? How does the client submit invoices and receive funding?
- What is my notification process? How am I compensated for my referral?
Many providers will compensate a factoring broker with a recurring monthly residual based on the profitability of the referred client’s account. Some brokers may receive an upfront commission as well, dependent upon the factoring provider’s mutually-agreed-upon terms.
A factoring broker will want to review and execute a referral agreement with each provider prior to submitting referrals to the provider. The broker may want to review the client’s application and the factoring agreement, as well, to understand the provider’s process and terms.
When a factoring broker consults with a client, he or she will ask the client a multitude of questions to determine the best fit for sourcing a provider. Questions can include, but are not limited to:
- Business Type and Industry
- Customers’ Names and Location
- Total Monthly Invoice Volume
- Average Invoice Amount per Customer
- Past Credit History
- Current Lender Relationships
These questions will help a factoring broker choose the best provider from their network, complete a factoring application for their client, and facilitate the financing agreement. In some cases, a factoring broker may simply refer a client’s name and contact information, and rely on the provider to perform the application process.
Factoring brokers can come in all shapes and sizes, and they can find a quite lucrative career by strategically utilizing their unique financial service network. However, as in most ventures, research and due diligence performed in advance will inevitably create the most beneficial situation for all parties.
Call Fast A/R Funding for all your factoring needs 888.833.2286