The Broker’s Role in the Factoring Transaction

As a factoring broker, what is your role in the factoring transaction? How involved should you be? Everyone has different feelings about the answers to these questions. This article will attempt to provide some general guidelines and helpful ideas.

The brokers role

What are the Roles of a Factoring Broker?

The initial role a factoring broker must serve is as an Educator. First, you must learn the prospect about non-recourse factoring, invoice funding, PO financing, accounts receivable factoring. Additionally, educate how these prospects will help them. Understand the business problems your prospect is facing and explain how factoring may solve those problems. Assume the prospect knows nothing about factoring; Don’t forget that factoring is foreign, and often, scary concept to many entrepreneurs. Slowly walk the prospect through the benefits of factoring. This is with particular emphasis on the impact the benefits will have on his business. Also, explain the logistics of factoring and what the factoring company is likely to expect of him.

Educating the Factoring Company

You also must inform the factoring company. For the factor in making an intelligent decision whether or not your prospect is qualified and at what rates to charge them, the factoring company must have as much relevant information as possible. The factoring will need information about any liens the prospect may have, outstanding loans, invoice size, customers, billing methods, etc. It means you must put on your Detectives hat and dig for information that will help the factor make an informed decision. The factoring company will ultimately uncover this information. However, the sooner all the facts are on the table, the faster the deal gets funded. That way everyone will avoid wasting time, energy and money on unqualified deals. Once you learn the facts, you must educate the factor about all the details you’ve uncovered.

Brokers as the Local Representative

A broker plays another significant role as the Local Representative. The factoring company cannot open branch offices in every city and town across the country. Moreover, some business owners do not feel comfortable dealing with a finance company in a faraway place (even though we know that all the transactions take place over the phone and fax and by wire transfer anyway). You are there in the prospect’s local community to bridge the geographic gap between factor and client, to hold his hand, answer his questions, make him feel more comfortable, and act as a liaison with the factor.

The Factoring Broker as a Problem Solver

Another role you must play is that of “Problem Solver.” Often deals get derailed because of problems that arise that the factor cannot overcome. When that happens, you should try to assist the factor and client solve the problem. For instance, if a client has a line of credit with the local bank and the bank has a lien on the client’s accounts receivable, the factor will need to convince that bank to subordinate their lien in favor of the factor to proceed with factoring the client’s receivables. This is often difficult to do from 1,200 miles away over the phone. You can assist the factor in overcoming this hurdle to factoring by setting a personal appointment with the banker and explaining factoring to him and how it will help your client’s business. Your meeting with the banker will go a long way in convincing him that factoring will help his borrower’s financial condition and will improve his likelihood of being repaid on his loan.

The Factoring Broker as a Facilitator

Finally, as a factoring broker, you must always act in the role of “Facilitator/Communicator.” Your job is to keep the lines of communication open between the factoring company and the client. You want to ensure that your client remains happy and continues to factor and you want to make sure that the factor remains pleased with the client so that he continues factoring him. This means regular follow-up with both parties. It also means intervening when necessary to clear up any misunderstandings or confusion that may occur. For example, if your client is confused about the reports he receives from the factor and he needs help understanding them, you should volunteer. Otherwise, if he does not follow the reports and he does not get a satisfactory explanation from the factoring company, he will eventually become disillusioned and confused and will cease factoring. This is not beneficial to any party involved.

One word of caution: think long-term

If you beat up on the factor to fund a client and you rush him through his due diligence, you may be forcing him to overlook a problem which can rear its head after the client is funded and ruin the deal in its infancy. Let the factor perform his due diligence, explain to the client what the factor is doing, and don’t make unrealistic representations to clients about the time it takes to fund. In other words, for everyone’s benefit, make sure the deal is done right so that the client factors for the long term and so that you don’t hurt your relationship with the factor.

Being a factoring broker requires wearing many hats and serving more than one master. It may at times feel like you’re performing a juggling act, but always remember that the functions you perform are critical both to the factor and to the client. Moreover, once you perfect this juggling act, you can reap the financial benefits that accompany it.

How do I Become a Factoring Broker?

For over 25 years our goal at Paragon has been to give brokers the tools to grow your intermediary financial business and to help entrepreneurs in your community. If you refer a deal to us, we pay a commission for the life of the account. All you have to do is give us a name and a number. If we close the deal, you get the commissions. Imagine getting a check in the mail every month for a simple referral! It can be an ongoing salary!

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