At some point in our working lives many of us think about starting a business and being our own boss. The thought of working for yourself seems so attractive to many because you get the chance to pursue your dream, make the decisions and profit from your endeavors.
Starting a Factoring Business
Those of us that own a business know that turning this dream into a reality takes a few steps. I promise not to make this article about writing a business plan or how to acquire capital from investors. That is not to say that either of these is not important if not crucial to getting a business off the ground. As a matter of fact, there are fantastic resources for free at the U.S. Small Business Administration’s website at www.sba.gov. Besides advice on business plans and loans, you can find great information on managing a business, marketing, law and much more.
I remember when I had first come up with the idea for my factoring company. As a former Chief Financial Officer of a publicly traded company, I figured this factoring thing would be a piece of cake. Nothing was further from the truth.
Where do you start? First, there is no true set of factoring standards. Being an accountant for over twenty years, the industry adheres to a set of accounting standards called “GAAP” (Generally Accepted Accounting Principles) which are how CPA firms and corporations prepare and present their business income and expense, assets and liabilities on their financial statements. By having this set of rules, it provides consistency for individuals and businesses that review financial statements whether for informational or investment purposes.
Finding Factoring Business Trading
For those new to the factoring industry there are many associations, professionals and publications that provide educational guidance and useful information about the factoring industry. To start, I would recommend reading a series of factoring training books written by Jeff Callender collectively called the “Small Factor Series”. This series is made up of six books that pretty much tell you what you need to know about factoring account receivables.
The International Factoring Association regularly schedules events on how to factor niche industries such as trucking, workshops for small factoring companies, sales training and other useful tools. For more information, go to www.factoring.org and click on the “Events” tab. While you’re at it, check out this publication for great insight from professionals giving you their perspectives and experiences on a wide range of factoring topics.
Learning the Ropes as a Factoring Broker
My experience has been to start slow and learn the ropes as you go along. Before factoring my first invoice directly, I worked as a factoring broker. I didn’t fund many deals but the experience of working with different factoring companies allowed me to gain valuable information.
If you do get the opportunity to work as a factoring broker, ask the factoring company what they require to fund an invoice. You will be surprised how cooperative the funder can be since your success equates to more business for them.
Also, if you have experience working in a specific industry that could use your factoring services, that may be a good place to start. I have a colleague who only factors small airline commercial receivables. Having worked in this industry for over thirty years, he is familiar with both the clients and customers giving him a tremendous edge over competing factors.
Becoming a Factoring Company
We are all aware of the risks involved with factoring receivables for a living. Talk to anyone who has been in this industry for a substantial period of time and most will usually give you at least one tale of a deal that may have gone just a bit differently than originally intended.
I like to look at my business from the other side of the coin. Obviously there are the rewards in terms of fees and profits–there is no denying that fact. I like to focus on the client. Maybe it’s just a small local manufacturer that needed cash flow to meet payroll or a startup business that has a winning formula but no capital to fuel their growth. You funded them giving them an opportunity to grow and potentially get their company to the next level.
It is basically up to you to chart your own course if you plan on starting a factoring business. Utilize the resources that are available to you, ask lots of questions because at the end of the day it’s your business and your call.
We are happy to discuss our factoring programs between 9:00-5:00 PST at (800) 790-3419. You may also visit our website Oxygen Funding for more information.
This article was written by our president Don D’Ambrosio and originally published in Factoring Investor on July 11, 2011.