Monday, September 10, 2012

Factoring Brokers are Being Robbed



 

New factoring brokers are popping up everywhere. It’s like a jiffy pop bag blew up and there are brokers all over the place. These new brokers seem to be coming out of the woodwork. It’s great don’t get me wrong. I love getting calls on Sunday afternoon asking me to help them get this deal or that deal funded.  However many of these new brokers are not making as much on deals as they should be. No one has educated them on some of the basics of choosing a good factoring firm to place deals with.

One of the things that stands out to me is that many brokers seem satisfied with whatever pricing the factor decides to charge. These brokers are partnering with factoring firms that have horrible sales people who really only take orders and price deals on the cheap.

Factoring firms that sell on the cheap and don’t have at least a 2 year contract with the customer are not good for brokers. These firms sell at the lowest price possible and the broker makes squat. Brokers who send deals to lenders who do not have good sales people will always see less commissions. My  suggestion is to set your own minimums on what kind of pricing the factoring firm has to sell the deal at or take the deal to someone else. It’s your deal and you should consider making as much on it as you can.

Factoring firms that have open ended contracts are again selling on the cheap. How can you as a broker build wealth if the firms you are placing deals with can’t keep the customer? Also, where have all the minimums gone in the factoring world? Without minimums how can a broker budget what’s going to be deposited in their accounts each month? Factors who have open ended contracts, sell on the cheap, with no minimums should be dropped from the brokers playbook.

Other factoring firms are taking brokers for a ride. They are funding deals but take money off the top before calculating the broker commissions. Let’s say that as a broker you expect to get paid 10% -15% on a deal. many factoring firms are paying out commissions on net profits after the funding company covers some “overhead” costs first. This really adds up.

On 1 million dollars of invoices purchased at let’s say just 2% for 30 days the broker who is getting paid on the straight percentage  with no “overhead” deductions at 15% makes 3k. Job well done. But factoring firms that  take the “overhead” cut off the top are paying brokers closer to 2k on the same deal. That can be 30% or more out of the brokers’ pocket. So that 15% really is more like 10% and if you are working with a firm that only pays 10% and does that it’s closer to 5% actually. Don’t stand for that kind of arrangement. It is not in your best interest. (pun on interest)

Now consider that as a broker you send 10 million dollars in deals to you favorite factoring firm next year. If that firm skims off the top you could be losing as much as 10k. Not only are you hunting deals for them but you are also expected to chip in and pay their light bills. If that firm also sells on price with open ended contracts with no minimums you are losing a great deal of money.

As a broker you have your own overhead and don’t have the base salaries that your sales partners are collecting. Taking control of your deals is in your best interest. Give yourself an immediate pay raise. My suggestion is to partner with lenders who:

  1. Have great sales people that will price deals that make real money.
  2. Get paid off the gross percentages not after “overhead” percentages.
  3. Inform the sales agent or factoring firm that you are working with that you have minimum expectations that will need to be met or you will take your deal to factoring firms that can actually sell deals at pricing that makes sense for you.
  4. Know who you are dealing with.

For more information about factoring firms that will work with you and get you the highest commissions possible contact Joe Kiefer at kiefer.joe@gmail.com. I’d really like to connect and share information with you. and learn from you best practices in our industry.  Let’s make money together and let’s make as much as we can on each deal.

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