[matt.estes]

At BlueVine, we've had success selling our BLOC product through alternative funding ISOs. We've had less so with the factoring product through that channel. Successful factor brokers tend to be very specialized in the factor market. Factoring can certainly be a more complex product - requiring some additional education on the terminology and structures. I'd love to get the DailyFunder community's perspective on why invoice factoring tends to be a less popular product to sell.

The economics for brokering factoring deals seem to be a no brainer. Let's compare a $300K cash advance to a $300K invoice factoring credit line:

Business Assumptions
- B2B
- $300K gross revenue per month
- Clean balance sheet
- 650+ FICO

Cash Advance

Let's assume you place a cash advance with this business for $300K (100% of monthly gross revenue) on n 12 month term. You make...what...3%? So $9,000 in commission upfront - for that year, for that client. Then assume 50% renewal rate for year 2 - +$4,500. Then assume 50% renewal rate for year 3 - +$2,250. That's a 3-year commission LTV of $15,750.

(My market intelligence suggests A-paper renewal rates are closer to ~30% per year on average across the top funders.)

Invoice Factoring

Let's assume you place a factoring credit line for $300K, and let's assume 100% utilization of that credit line for the sake of simplicity. Let's also assume no growth in the factoring credit line year-over-year. At 0.5% per week, that credit line has an APR of ~26% excluding any late fees. The factor would generate 0.5% per week * $300K credit line * 52 weeks = ~$78K in annual fees. Commission is 15% of fees generated, so annual commission paid is $11.7K.

The average lifetime of a factoring client is 3-6 years. A 3-year commission LTV in this scenario would be $35,100.

If you do 2 of these factoring deals per month for a year, you're looking at an annual residual income stream of $11.7K x 24 = ~$280K.

Scaling - Larger Deals

Let's increase the factoring credit line to $1,000,000 and continue to assume 100% utilization. At 0.5% per week * $1M credit line * 52 weeks, the factor is generating $260K in annual fees. Annual commission @ 15% of fees generated is $39,000. That's 3.9% of a $1,000,000 credit line - with a likely 3-year commission LTV of $117,000.

Where else can you find a 3.9% annual commission on a $1,000,000 facility? Bank will pay you 1% (maybe). SBA loans pay you 1% plus whatever schedule of fees you maintain. Advances / installment loans? Maybe close in the first year, but you're missing out on the residual after year 1.

Where else can you find this sort of residual commission or "renewal rate" on a $1,000,000 facility?

Thoughts?

[Karen37a]

I do not think its the complexity of the product, there are very intelligent people on these boards and in the MCA space (well the ones who survive )

You just cant be all things to all people and have volume...gathering any additional paperwork/ balance sheets/ tax returns is like staring into the abyss for me.

You see people complaining all over these boards about how they cant get deals done because of competition etc. The last thing that I want to do it to saddle my brokers ( who also complain daily) with additional requirements, so they can make more excuses as to why they only made 1 sale for the month and they are a cpa/mba /cfc etc

I choose to pass or refer those off if and when I get them and stay in my wheel house ...the one I purposefully chose after great thought, marketing strategy, and experience... the one that I am most profitable in and feel most comfortable in.

Not to sound pompous or arrogant...there is a reason I didn't go to Law school for 3-5 long long long long long years and why I only completed 4 years of college got my computer science degree, trashed it and went straight to wall st.

I understand the aversion to paperwork, or abhorrence , hatred...ick And I know what most merchants are feeling when they are asked for all that crap. That's probably why I can sell and close.

People who dont feel this way ...the structured types, can never understand. No matter how many times someone says ...just go get these additional documents its easy...It isnt

And the long explanation of Quadratic equations, esoteric scoring model algorithm pitch has to go to lol

Again..I like to refer those off and get a %. You can pm me information if you like.

[MCNetwork]

The main problem for me is finding merchants that fit this criteria:

Business Assumptions
- B2B
- $300K gross revenue per month
- Clean balance sheet
- 650+ FICO

You just won't find these from trolling a UCC list. You have to be willing to cold call these larger companies and finesse your way through multiple gatekeepers in order to pitch the product. And there are companies that have had bad experiences with factoring companies so it's not an easy sell at all. It all boils down to what is the most effective use of your time and what marketing channel brings the most bang for the buck. And straight up cold calling brings in the lowest return on your time. That's why almost everyone calls UCCs.

[Karen37a]

addtext_com_MDkxNjQzMTExMjY0.jpg


Mcnnetwork I have leads for you !! Free lol

[Kevin Henry-Seacoast]

At BlueVine, we've had success selling our BLOC product through alternative funding ISOs. We've had less so with the factoring product through that channel. Successful factor brokers tend to be very specialized in the factor market. Factoring can certainly be a more complex product - requiring some additional education on the terminology and structures. I'd love to get the DailyFunder community's perspective on why invoice factoring tends to be a less popular product to sell.

The economics for brokering factoring deals seem to be a no brainer. Let's compare a $300K cash advance to a $300K invoice factoring credit line:

Business Assumptions
- B2B
- $300K gross revenue per month
- Clean balance sheet
- 650+ FICO

Cash Advance

Let's assume you place a cash advance with this business for $300K (100% of monthly gross revenue) on n 12 month term. You make...what...3%? So $9,000 in commission upfront - for that year, for that client. Then assume 50% renewal rate for year 2 - +$4,500. Then assume 50% renewal rate for year 3 - +$2,250. That's a 3-year commission LTV of $15,750.

(My market intelligence suggests A-paper renewal rates are closer to ~30% per year on average across the top funders.)

Invoice Factoring

Let's assume you place a factoring credit line for $300K, and let's assume 100% utilization of that credit line for the sake of simplicity. Let's also assume no growth in the factoring credit line year-over-year. At 0.5% per week, that credit line has an APR of ~26% excluding any late fees. The factor would generate 0.5% per week * $300K credit line * 52 weeks = ~$78K in annual fees. Commission is 15% of fees generated, so annual commission paid is $11.7K.

The average lifetime of a factoring client is 3-6 years. A 3-year commission LTV in this scenario would be $35,100.

If you do 2 of these factoring deals per month for a year, you're looking at an annual residual income stream of $11.7K x 24 = ~$280K.

Scaling - Larger Deals

Let's increase the factoring credit line to $1,000,000 and continue to assume 100% utilization. At 0.5% per week * $1M credit line * 52 weeks, the factor is generating $260K in annual fees. Annual commission @ 15% of fees generated is $39,000. That's 3.9% of a $1,000,000 credit line - with a likely 3-year commission LTV of $117,000.

Where else can you find a 3.9% annual commission on a $1,000,000 facility? Bank will pay you 1% (maybe). SBA loans pay you 1% plus whatever schedule of fees you maintain. Advances / installment loans? Maybe close in the first year, but you're missing out on the residual after year 1.

Where else can you find this sort of residual commission or "renewal rate" on a $1,000,000 facility?

Thoughts?

Matt,

People in general will always look for the path of least resistance even though they could do a better job for their client offering a solution rather than just money. True brokers, advisors, and investment bankers will put in the work required to do a good job for their customer and be rewarded for doing so. I get 20 calls a week from brokers that want to learn more about factoring and asset based lending so they have more tools in their chest to help clients. Some will get it, but most will go back to what they know and immediate gratification.

As for the comment about people having a bad experience with factors in the past.....sure their are bad factoring companies out there much like their are bad private equity fund, mezz funds, and venture capital funds. The key is knowing your customer and getting to know good sources of capital.

Best,

Kevin

PS: 26% factoring fees is pretty steep! Finding a good source of capital with low cos of funds is critical!

[RichardGerard]

Matt,

Adding color to Kevin's statements: The clients themselves invariably wish to avoid Factoring firms- yet will take out MCA's at 1.4 and change for short periods. It is a strange dynamic but one I deal with often. Part of their hesitation is that they are promised that they can get a Line of Credit- which in many instances/situations is not feasible.

Aside from the stigma of factoring, the biggest challenge is that clients are inundated with Broker calls/promises, and frankly don't know who to trust.

RG

[mcaguru]

At BlueVine, -

Business Assumptions
- B2B
- $300K gross revenue per month
- Clean balance sheet
- 650+ FICO

Cash Advance

Let's assume you place a cash advance with this business for $300K (100% of monthly gross revenue) on n 12 month term. You make...what...3%? So $9,000 in commission upfront -

Thoughts?

Love Invoice Factoring ! With that said at Cresthill Capital (Mantis) a 300K file would pay ISO $30,000 -(at the minimum).....Not knocking Bluvine hope you guys get a unicorn valuation but just want to get the facts out to the people regarding MCA.

[brokerCompany]

timing. most MCA needs money now and dont have the financials required for factoring or dont have the commercial invoices.
Matt what are your requirements and package needs for a factoring facility in the 300k range?

[Karen37a]

I agree with brokercompany....case by case basis

And when you try to do the right thing , the merchant DOES NOT want it.

Then the merchants make the brokers/lenders a scape-goat for their high cost advances and bad decisions, bad business practices... Even though they knew up front what its all about.

These people use the "i have been taken advantage of by a bad greedy broker" as a get out of jail free card when either the **** hits the fan or they have to rethink their leadership/management ability. And their decision to take the short quick money.

Lots of drama to get them to fix themselves, and do the right thing...almost the same results as the person not trying.

[soscap]

At BlueVine, we've had success selling our BLOC product through alternative funding ISOs. We've had less so with the factoring product through that channel. Successful factor brokers tend to be very specialized in the factor market. Factoring can certainly be a more complex product - requiring some additional education on the terminology and structures. I'd love to get the DailyFunder community's perspective on why invoice factoring tends to be a less popular product to sell.

The economics for brokering factoring deals seem to be a no brainer. Let's compare a $300K cash advance to a $300K invoice factoring credit line:

Business Assumptions
- B2B
- $300K gross revenue per month
- Clean balance sheet
- 650+ FICO

Cash Advance

Let's assume you place a cash advance with this business for $300K (100% of monthly gross revenue) on n 12 month term. You make...what...3%? So $9,000 in commission upfront - for that year, for that client. Then assume 50% renewal rate for year 2 - +$4,500. Then assume 50% renewal rate for year 3 - +$2,250. That's a 3-year commission LTV of $15,750.

(My market intelligence suggests A-paper renewal rates are closer to ~30% per year on average across the top funders.)

Invoice Factoring

Let's assume you place a factoring credit line for $300K, and let's assume 100% utilization of that credit line for the sake of simplicity. Let's also assume no growth in the factoring credit line year-over-year. At 0.5% per week, that credit line has an APR of ~26% excluding any late fees. The factor would generate 0.5% per week * $300K credit line * 52 weeks = ~$78K in annual fees. Commission is 15% of fees generated, so annual commission paid is $11.7K.

The average lifetime of a factoring client is 3-6 years. A 3-year commission LTV in this scenario would be $35,100.

If you do 2 of these factoring deals per month for a year, you're looking at an annual residual income stream of $11.7K x 24 = ~$280K.

Scaling - Larger Deals

Let's increase the factoring credit line to $1,000,000 and continue to assume 100% utilization. At 0.5% per week * $1M credit line * 52 weeks, the factor is generating $260K in annual fees. Annual commission @ 15% of fees generated is $39,000. That's 3.9% of a $1,000,000 credit line - with a likely 3-year commission LTV of $117,000.

Where else can you find a 3.9% annual commission on a $1,000,000 facility? Bank will pay you 1% (maybe). SBA loans pay you 1% plus whatever schedule of fees you maintain. Advances / installment loans? Maybe close in the first year, but you're missing out on the residual after year 1.

Where else can you find this sort of residual commission or "renewal rate" on a $1,000,000 facility?

Thoughts?

Like Marcus said. The commission payout is much higher than 9k more like $24-36k and some MCA funders pay even more.

[mcaguru]

Like Marcus said. The commission payout is much higher than 9k more like $24-36k and some MCA funders pay even more.

True that David! At the same time our ISO's should look into evrey possible business finance solution, i just wanted to correct the payouts structure.

[soscap]

True that David! At the same time our ISO's should look into evrey possible business finance solution, i just wanted to correct the payouts structure.

Totally agree! An ISO should present all available options and should push for the best deal for the client and not himself.

[Karen37a]

Some of these people on the boards are not real. And if they are geez.

[GMFunding]

Like most have said, education on the matter I think objectively is the main reason. The second reason would be the turnaround for all parties (broker/applicant). We're always willing to go whichever route the merchant feels is best but when they learn the timeframe it often pans back to MCA and the like. Lastly, when I do find a deal in the right metrics for invoice factoring they often already have something in place and from experience buying those type of contracts out isn't feasible or the margins become too thin for all involved.

[Kevin Henry-Seacoast]

Like most have said, education on the matter I think objectively is the main reason. The second reason would be the turnaround for all parties (broker/applicant). We're always willing to go whichever route the merchant feels is best but when they learn the timeframe it often pans back to MCA and the like. Lastly, when I do find a deal in the right metrics for invoice factoring they often already have something in place and from experience buying those type of contracts out isn't feasible or the margins become too thin for all involved.

GMFunding,

You are correct. Unseating a current factor can be difficult unless they are not financing all of the assets (AR, Inventory, and M&E) available, the advance rate with the current factor is low, or the new factor has a low cost of funds where it makes sense to switch and pay a termination penalty.
I have done deals where we increased the AR advance rate, added inventory to the deal, and lowered their rate by 8 points.
Unseating a factor for the same assets at like rate does not make sense unless their is a relationship problem.

[TedFundy]

An MCA broker is like a pimp. A factoring broker is like a match maker.

[Karen37a]

I Hate to busts everyone's bubble but the best MCA brokers act like matchmakers and are solution oriented. Very few use this methodology...and the few ( not all ) that do are too technical and dont dumb down the explanations for merchants, then a broker who mows lawns comes by and gets your sale and you stomp your feet...but I have a MBA dammit.

( which is why I am always making an inside joke about quantitative analysis, comparative analysis and the esoteric scoring models, and why anyone who gets over a 90 on the series 7 cant make it on wall st, even though I got a 91 and out of frustration i say...go write a book lol )

There is a happy medium between Harvard/yale/Wharton and lawns

[matt.estes]

Thanks to everyone for your responses. A quick summary, I heard some combination of:

- Education on the product (both for the merchant and for the broker)
- Speed
- Commission (although I'm surprised to hear that a $300K advance for A-Paper / first position would pay 8-12% as SOSCap said. I believe you guys, I simply personally haven't seen that in the market. But I'm obviously not as close to these things as you guys are. Appreciate the insight there).
- Poor perception of factoring
- UCC Lists (one of the primary customer acquisition funnels) don't lend themselves to large B2B businesses.

If any of you have ideas how we could creatively improve the large factoring positioning with MCA brokers, I'm all ears!

Thanks,
Matt

[Kevin Henry-Seacoast]

Thanks to everyone for your responses. A quick summary, I heard some combination of:

- Education on the product (both for the merchant and for the broker)
- Speed
- Commission (although I'm surprised to hear that a $300K advance for A-Paper / first position would pay 8-12% as SOSCap said. I believe you guys, I simply personally haven't seen that in the market. But I'm obviously not as close to these things as you guys are. Appreciate the insight there).
- Poor perception of factoring
- UCC Lists (one of the primary customer acquisition funnels) don't lend themselves to large B2B businesses.

If any of you have ideas how we could creatively improve the large factoring positioning with MCA brokers, I'm all ears!

Thanks,
Matt

Matt,

Good luck. Give me shout if you have any questions: 561-623-1872. As for the poor perception......There are bad factors out there just like bad banks, venture capital funds, private equity funds, mezz funds, and hedge funds. Just like bad brokers, advisors, and investment bankers. The key to your success in financial services if following a very simple set of rules. 1-Always know you customer, their needs, and desires. 2-Always know your sources of capital and learn their demeanor. This business is relationship driven and knowing where all the bodies are buried is importanat!

Best,

Kevin

[soscap]

If any of you have ideas how we could creatively improve the large factoring positioning with MCA brokers, I'm all ears!

Thanks,
Matt[/QUOTE]
Matt, I have some ideas. Give me a call to discuss.

[Karen37a]

Kevin is an expert..Ive spoken with him and he knows way more than I do in certain verticals

[bdshaw]

I don't mean to step in your toes Mart but after 40 years of factoring I can teach someone how to identify and qualify a potential factoring client in about 10 minutes. I'm happy to offer that to anyone who is interested in earning.
Factoring is relatively simple if you get right to the basics.
Richard, Kevin and Matt do a great job working on deals with brokers. We do also.
Bob Shaw
Iron Horse Credit
fka, Delancey Finding
734-929-3800
rshaw@ironhorsecredit.com