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  1. #1
    Senior Member Reputation points: 44171
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    Need advice on factoring deal

    Need some advice on factoring.

    Have a deal right now with a factor that is getting ready to close.

    Here are the terms some of the terms

    80% advance rate

    1M in volume for one year

    500K Facility limit.

    3.75% Factor fee for 0-60 days
    4.75 % 61-75

    He has about 900K in AR and he owes around 300K in MCA's.The factor is going to pay off the MCA's.

    He wants to factor all of his AR.

    My question is, how does the funding work? Will they fund him a large sum upfront or will it be in batches based on his invoices. The rep I am working with is not really explaining things clearly.

    I've heard of brokers that charge fees outside as well.Is ok to charge fees outside of what the factor is paying? If so how much on a transaction this size? They are paying 10% of the fees residually.

    Also Assuming he does 1M worth of business in a year and they charge 3.75 and his debtors pay on time... 1M x 3.75=$37,500? Is that the cost of funds?(excluding any fees) does that mean commission would be 10% of the $37,500=$3,750 divide by 12=312.50 a month?

    Hoping to get some good feedback here.

  2. #2
    Give me a call in the morning I would love to discuss this with you,
    Kevin Sampson
    Capital Solutions Bancorp
    http://capitalsolutionsbancorp.com
    ksampson@capitalsolutionsbancorp.com
    706-745-8435 Office
    561-436-5883 Cell

  3. #3
    Senior Member Reputation points: 337045
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    Quote Originally Posted by Mynameisbob View Post
    Need some advice on factoring.

    Have a deal right now with a factor that is getting ready to close.

    Here are the terms some of the terms

    80% advance rate

    1M in volume for one year

    500K Facility limit.

    3.75% Factor fee for 0-60 days
    4.75 % 61-75

    He has about 900K in AR and he owes around 300K in MCA's.The factor is going to pay off the MCA's.

    He wants to factor all of his AR.

    My question is, how does the funding work? Will they fund him a large sum upfront or will it be in batches based on his invoices. The rep I am working with is not really explaining things clearly.

    I've heard of brokers that charge fees outside as well.Is ok to charge fees outside of what the factor is paying? If so how much on a transaction this size? They are paying 10% of the fees residually.

    Also Assuming he does 1M worth of business in a year and they charge 3.75 and his debtors pay on time... 1M x 3.75=$37,500? Is that the cost of funds?(excluding any fees) does that mean commission would be 10% of the $37,500=$3,750 divide by 12=312.50 a month?

    Hoping to get some good feedback here.
    Hi Bob,

    You need to determine a few things before figuring out the commissions and if this is a good deal for your client.
    -How do customers pay? If they are paying in less than 60 days then they are being charged for days they don't need.
    -What is the cost of funds for the factor. If the cost of funds are high, you make less. Assuming their cost of funds is somewhere around 6% the commissions for the deal would be somewhere around $3795 for the year. A lesser cost of funds drives the commissions higher.
    -Are they charging a line fee and do you participate in the line fee?


    Just because someone charges a higher rate does not mean the referral partner makes more.
    Hedley Lamarr......That's Hedley

  4. #4
    Senior Member Reputation points: 27404
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    Location
    Texas
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    Quote Originally Posted by Mynameisbob View Post
    Need some advice on factoring.

    Have a deal right now with a factor that is getting ready to close.

    Here are the terms some of the terms

    80% advance rate

    1M in volume for one year

    500K Facility limit.

    3.75% Factor fee for 0-60 days
    4.75 % 61-75

    He has about 900K in AR and he owes around 300K in MCA's.The factor is going to pay off the MCA's.

    He wants to factor all of his AR.

    My question is, how does the funding work? Will they fund him a large sum upfront or will it be in batches based on his invoices. The rep I am working with is not really explaining things clearly.

    I've heard of brokers that charge fees outside as well.Is ok to charge fees outside of what the factor is paying? If so how much on a transaction this size? They are paying 10% of the fees residually.

    Also Assuming he does 1M worth of business in a year and they charge 3.75 and his debtors pay on time... 1M x 3.75=$37,500? Is that the cost of funds?(excluding any fees) does that mean commission would be 10% of the $37,500=$3,750 divide by 12=312.50 a month?

    Hoping to get some good feedback here.
    Commissions, you will only get 10% of the 3.75%-4.75% fee, but get paid every time they factor.

    They usually get 80-95% of their A/R pending on whos factoring and who the invoice or P.O is from.
    The invoice issuer have to pass UW more so then the merchant.

  5. #5
    Senior Member Reputation points: 216519
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    Feb 2017
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    3,334

    There are two structures that factors generally offer. (There are very few exceptions....)

    1) 10% of the gross sales
    2) 15% of the net (gross rate charged minus cost of capital)

    Seacoast offers 15% of the net, and his cost to capital is low since it's coming from a bank's own deposits.
    What you are being offers is 10% of the gross sales.

    Different lenders will offer different levels of liquidity for clients, meaning they might give a max amount they can factor one year even if it's a better rate for the client, so it's worth knowing your lenders.

  6. #6
    Senior Member Reputation points: 203054
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    on the commission side to you its peanuts. you have to hope merchant stays factoring to make money if not you make few hundred bucks a month only and if its to you directly it helps but if its to your company and you get a percentage of that its even smaller. Issue im having trying to get our reps to utilize this program when speaking to merchants. For merchant it could be best option but for reps to actually make money its not the easiest thing. Reach out to either Kevin who responded to you i've worked with both and both are stand up guys that know their stuff.

  7. #7
    Quote Originally Posted by Sachip24 View Post
    on the commission side to you its peanuts. you have to hope merchant stays factoring to make money if not you make few hundred bucks a month only and if its to you directly it helps but if its to your company and you get a percentage of that its even smaller. Issue im having trying to get our reps to utilize this program when speaking to merchants. For merchant it could be best option but for reps to actually make money its not the easiest thing. Reach out to either Kevin who responded to you i've worked with both and both are stand up guys that know their stuff.
    Thanks Xashary, please check out our new commission rates, they were revised over the summer.
    Kevin Sampson
    Capital Solutions Bancorp
    http://capitalsolutionsbancorp.com
    ksampson@capitalsolutionsbancorp.com
    706-745-8435 Office
    561-436-5883 Cell

  8. #8
    Senior Member Reputation points: 203054
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    Quote Originally Posted by KMSampson View Post
    Thanks Xashary, please check out our new commission rates, they were revised over the summer.
    Hope all is well Kev, can you email them to me again I don't think I received that update.

  9. #9
    Senior Member Reputation points: 44171
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    Quote Originally Posted by kevinhenry0527 View Post
    Hi Bob,

    You need to determine a few things before figuring out the commissions and if this is a good deal for your client.
    -How do customers pay? If they are paying in less than 60 days then they are being charged for days they don't need.
    -What is the cost of funds for the factor. If the cost of funds are high, you make less. Assuming their cost of funds is somewhere around 6% the commissions for the deal would be somewhere around $3795 for the year. A lesser cost of funds drives the commissions higher.
    -Are they charging a line fee and do you participate in the line fee?


    Just because someone charges a higher rate does not mean the referral partner makes more.
    Hi Kevin, thanks for the response.

    His customers pay anywhere between 45-60 days sometime they are late.I had the guy get credit insurance on the accounts receivable because the factor wouldn't approve the single account for more than 100K.

    How do I figure out the cost of funds? Do they tell me that?

    What is a line fee?

    Thanks for the feedback, this is what makes this forum great!

  10. #10
    Senior Member Reputation points: 44171
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    Sachip,

    My question to you is:

    How would a typical deal like this close?

    Assuming everything checks out and they advance up to 500K and pay off the 300K in MCA's. - the setup fees and application fees are less than 6k according to the proposal. Will the client receive the 200K remaining in one shot,or do they fund invoice by invoice into different increments?
    Last edited by Mynameisbob; 11-07-2018 at 03:45 PM.

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