In business, a broker is usually a middleman who facilitates transactions between a buyer and a seller, or a borrower and a lender. A stock broker helps clients buy and sell stocks; a real estate broker helps the home buyer and home seller negotiate a deal; a mortgage broker can help home buyers get the best mortgage terms; and a loan broker helps clients obtain loans.
What is an Account Receivable Financing Broker?
An account receivable financing broker is a special type of broker who arranges for funding for a client by using the client’s accounts receivables. AR financing is not really a loan; it’s more like an exchange.
The client submits their account receivables to the factoring company, and in return it gets about 80% of the value of the invoices right away instead of waiting 90 days. The balance of the fee (minus the factoring company’s fees) will be sent to the client once the client’s customer pays in full.
If you plan to become a factoring broker, you may then apply to be part of a factoring company’s account receivable financing broker program. You can then refer clients to the factoring company, and in return you get a commission. Since many account receivable funding cases are continuous, you receive a commission during the lifespan of the relationship between the factor and the client business.
Why Are Factoring Brokers Important?
For client businesses, your work as a broker can be crucial because so many businesses today need working capital. With banks becoming more tightfisted with their loans, small businesses need alternative forms of financing. Many businesses today are still unaware of factoring and how it works. As a broker, you can help your clients understand how account receivable financing works, and you can guide them through the application process.
For factoring companies, brokers serve as roving sales agents for its financing services. They can help businesses become more aware of the factoring company’s available financing, and brokers can help drum up more business.
What to Look for in a Program
As a broker, of course you will be checking out the commission rates. But that’s not all you should check out in an account receivable financing broker program. You need to make sure that that they offer attractive terms and services to potential clients, so that clients not only choose the factoring company but also choose to extend the arrangement.
You need to check the following variables:
- What is the funding limit? This should be high enough to cover the needs of the clients.
- In which industries does the factoring company specialize in?
- How easy is the application and how high is the approval process?
- What is the percentage of the advance? Some factors advance 70% of the value of the invoices, while others offers as much as 90% of the value.
- What are the fees involved. Factoring companies charge a percentage of the value of the invoices. Some factors require setup fees, and they may also charge extra for late- payingcustomers.
- How good is the customer support?
As a broker, your job is to present the factoring company as a viable source of financing. At the same time, you also need to figure out how your factoring company can best help your clients. To sign up as a broker click here