Over the past few years I’ve written several articles about starting your own factoring business. Much of the information referred to resources, capital, due diligence and general topics related to the asset based lending industry.
To this day I am still amazed over the response we have received on this topic. Today alone I’ve received calls from Europe, Asia and the U.S. about factoring.
Since the interest level on this topic has remained so high I felt that it would be a good idea to do a “Best of How To Start A Factoring Business” compiled from previous articles and questions we have received over the last few years.
1. Should I begin as a factoring agent or broker rather than starting a direct funding company?
First, understand what invoice factoring is and how it can benefit your client. Experience has revealed it’s better to start slow and learn the ropes as you go along. Fortunately, you can earn commissions while you learn.
Before factoring my first invoice directly, I worked as a broker. I didn’t fund many deals but the experience of working with different factoring companies allowed me to gain valuable information. When starting as a factoring agent, ask the funding companies what they need to make advances on invoices. Most factors are very cooperative knowing your success can equal more business for them.
When deciding where to start take the time to inventory your existing experience. Whenever possible start by offering services to a specific industry that aligns with your base of knowledge. While the factoring side might be new you’ll have familiarity with the general business operation and better understand the client’s needs.
2. Can I work the factoring business part-time?
Of course you can. Just understand the part-time option is usually a better fit for brokers rather than funding companies. We find clients are demanding and rightfully so. While office hours are generally Monday through Friday, I cannot tell you how many calls or emails we respond to after hours and on weekends.
When a client is trying to make payroll for the week by factoring invoices you can understand why they are urgently hoping to track you down. On the other hand, you might structure your company to have a limited number of clients or schedule funding on certain days of the week. If this is the case, you may be able to manage your book of business on a part-time basis as a direct funding company.
3. How do I market my factoring business to find new clients?
While not always the first questions posed, it eventually comes up in almost every conversation–as it should. A sound marketing plan is essential to your success. It will either make or break a business in any industry.
The marketing strategy doesn’t need to be a formal plan consisting of hundreds of pages of text with graphs and charts, but you do need a path to follow or you will get lost very quickly.
However, one size does not fit all. If there were a true golden ticket we would all march down to the Willy Wonka chocolate factory and claim our prize.
Maybe you enjoy working with a specific client profile or have experience in a particular industry. Have you worked in the health care field? Then medical factoring could be a natural fit. Previously involved in the transportation industry? Consider exploring trucking or freight factoring.
Identify your factoring niche and formulate a plan to penetrate it.
Learn from the real life experience of those that have successfully walked the path before you in books like Marketing Methods for Small Factors and Brokers.
The Internet provides endless resources you can utilize to research industries, markets, and strategies. It is up to you to create your unique house brand and implement the information to grow your business.
4. Where can I find more information on starting a factoring company?
The accounts receivable funding industry has many associations, professionals and publications that provide educational guidance and useful information. Here are three to jump-start your efforts:
The Factoring Investor website is an excellent resource for learning about the factoring industry. There are great articles in the “Factoring 101″ category from a variety of industry experts with different points of view.
Another top resource is the International Factoring Association. They have an annual conference and an extensive library of materials, legal documents, and recorded teleconferences available for download.
Finally, I highly recommend reading the “Small Business Factoring Series” written by Jeff Callender, a 20 year factoring professional. His collection of six books serves as a how-to guide for becoming a factoring broker, agent or company.
It’s up to you to control how far you want to go in the factoring business. Chart your own course, plan extensively, and most importantly–enjoy the journey.
This article was written by our president Don D’Ambrosio and originally published in Factoring Investor on March 11, 2013.
Don D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California.
For more information, he can be reached at firstname.lastname@example.org or you can visit his company’s website oxygenfunding.com