Factoring BrokersA number of parties are involved in the factoring process. Key figures are factoring brokers. However, there are others. Let us discuss the players. The first is the accounts receivable seller, which, in this ongoing example, is your company. The second party is the payor of the invoice. This is your client, the company you have done business with that owes you money. The third party is comprised of factoring brokers (middlemen of sorts who arrange the purchase of invoices) or direct funders (persons who buy invoices direct). (POINT OF NOTE: The "factor" may be a separate broker and funder, or it may be one company or individual acting in both capacities.) If it is a broker/funder relationship, that broker will arrange the transaction, and ensure you receive your funds in a timely manner. The funder is the party actually buying invoices. These funders use factoring brokers to find appropriate invoices to buy. In other words, factoring brokers acts as “go-between” or middleman in the invoice seller-funder arrangement. Brokers who arrange transactions, but who do not fund the transaction, generally earn a commission on each transaction. Since the funder buying the invoices takes the greatest risk in the transaction process, he normally receives the largest share of the 1.5% – 5% factoring fee. The factoring broker arranging the transaction would receive around ten percent of this. For example, on a transaction factoring $100,000 in accounts receivable at 3% over 30 days, the funder would receive $3000 ($100,000 x 3%). The broker who arranged the transaction would receive $300 ($3000 x 10%). These figures, at first glance, may not seem like much. However, when one realizes that most factoring arrangements are for a minimum of one year, then the figures appear very differently. Using the same example for the 12 month period, the funder would buy $100,000 each month in accounts receivable or a total of $1,200,000 ($100,000 x 12 months). He would receive a funding fee of $3000 each month for 12 months. Therefore, from this one factoring arrangement, he stands to make a total of $36,000 ($3000 x 12 months). Likewise, the factoring broker will receive, from this one arrangement, $3600 ($300 x 12 months). As these figures show, factoring can be a win-win-win arrangement for the seller, the funder and the factoring broker. When a business finds a factoring company to work with, it is generally a good idea to maintain that relationship over time. Should that business find itself needing immediate cash flow at any point in the future, the factoring company is much more willing to work with those they've successively funded in the past. The factor may even offer more favorable terms because of this past relationship. Next PagePrevious PageLooking for an accounts receivable factoring quote? Are you unsure of what to do next? Confused? Need help? Then, you have come to the right place. At learn-about-cash-flow.com, we are here to provide you the help and guidance you need.
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