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Issue #13

December 20, 2002

What’s in this issue...

1) Announcements
   December Publication
   FactorTips.com -- Now Its Own Web Site!
   More New Web Sites
   Factoring Fundamentals Is Here!!  
   Small Factor Listing on SmallFactor.com
   Monthly drawing winner: Larry Potter
2) Article: Software for Part-Time Factoring
3) Classifieds
4) Featured Web Site : Destiny Capital Funding
5) Reader’s Question:
   Previous: Paperwork -- a deal killer?
   New:     Timing of UCC filing
6) QuickTips: Client loans
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Announcements

The release of our new book, Factoring Fundamentals: How You Can Make Large Returns in Small Receivables, has finally arrived! This is the first of four books in The Small Factor Series, which includes Factoring Small Receivables (available now), Factoring Case Studies (due out in late January), and Unlocking the Cash in Your Company (due out Q1 2003).

Order here...and for a really great deal, check out our December Sale in the Classifieds below!!

Are You Listed in SmallFactor.com?

Attention small factors! Is your company included in the Factor Listing of SmallFactor.com? It can be a great source of referrals and it’s FREE!

What’s more, if you have a deal you can’t do, chances are someone on the listing will be interested in it. Find an appropriate referral and make the call. Bookmark the page!

The number of people on the Listing is steadily growing, so be sure you’re included. Additions since our last issue include Commercial Finance, LLC of American Fork, UT, Dalmar Associates, Inc. of Duluth, GA, and A/R Capital Resources, Ltd. of Sugar Land, TX.

Requirements are that you:

• are presently purchasing receivables (not just planning to) and
• accept accounts factoring less than $10k per month.

The Listing’s purpose is to assist smaller factors who do not fund large receivables. (We may make exceptions for niche factors who specialize in trucking, construction, and medical receivables.) Companies with maximums over $500k are encouraged to use web site listings suited to these larger receivables.

To see the Listings which are sorted by State go to Listings. To be included fill out the form at Request Listing.

Links to listed companies’ web sites are provided. Contact each to learn the parameters of transactions they fund.

Monthly Drawing Winner!

Once each month we announce the winner for that month’s drawing. “What drawing?” you ask.

When you register to receive FactorTips on one of our web sites you are automatically entered into a monthly drawing to receive a free copy of one of our paperback books.

The winner for December is Larry Potter of Zion, IL. Congratulations, Larry! Your book is on its way.

Article

One of the biggest time savers is factoring software that meets your needs. If you are “technologically challenged” and absolutely will not use a computer, you can keep a basic business journal and track your transactions on paper. However the time you spend learning to use a computer will be made up many times over with the time the computer will save you in calculations and tracking account activity.

If you start with just one or two clients, using spreadsheets to track invoices and payments is usually adequate. You will need to know how to make basic entries, format text, link cells, and create and maintain simple formulas. If you don’t know how to do this, someone familiar with these spreadsheet activities can teach you without much difficulty. You don’t need to know advanced functions of spreadsheets – just how to perform these basic tasks, especially calculations involving addition and percentages.

You can create the spreadsheets yourself although elementary ones are provided in a product called Record Keeping Templates. These templates are described in detail in Factoring Small Receivables, book 2 of this series. The templates, which are Microsoft Excel and Word files, include all the set up and legal documents needed in addition to the spreadsheets. They can be ordered from www.DashPointPublishing.com for a modest price.

If your part-time factoring extends to a half dozen clients or so, you may find yourself outgrowing spreadsheets and want to graduate to a database program written specifically for factoring. If you have 

experience creating relational data bases using a program such as Microsoft Access and have the time, you might create a simple data base to track your factoring transactions.

You’ll need to include entry screens for new invoices, entry screens for payments, and reports which give the information you want. Having software that can provide clients with online reports will save you and them a great deal of time tracking their account. If you have created data bases and have the time and inclination to write your program, you can save a bundle this way over the vertical market software that’s for sale. If you have never created a data base before, this is not the place to start.

As your factoring business matures, your software needs can become rather involved. Your factoring investment or business will be heavily dependent on your software, so use good judgment as you consider your software alternatives.

There are at least three commercial data base programs available written specifically for factors, and their cost suggests you are fairly serious about factoring as a business. The least expensive program, Win!Factor, leases for $500 per year from Kingham Software. That is, to continue using the program and receive regular updates and support, you pay $500 each year. If you don’t do this the program is designed to lock you out. The other two programs, which are significantly higher in price, are discussed in the section on full-time factoring.

A complete working trial version of Win!Factor is available from Kingham’s web site.

Business Services Classifieds

Reader’s Featured Web Site

Each issue we feature the web site of one of our readers. Our purpose is to highlight the niches and expertise available within our community so that everyone reading FactorTips can make good use of them.

To request your web site be reviewed for this feature, drop an email to: factortips@smallfactor.com and put in the Subject line “Featured Web Site.”

This issue’s Featured Web Site is that of Destiny Capital Funding. Karen Hardy is CEO, and her focus is primarily on providing small business loans and helping her clients establish a positive business credit report.

Factoring fits right in with her services. Karen has taught several college courses  including Accounting, Business Ethics, Project Management, Organizational Beha- vior, and Organizational Study and Design. She has a variety of experience in the finance industry, including working as an Assistant Branch Manager with Citibank.

Click on the logo below to browse Karen’s web site.

Reader’s Question

"Legalese" can be very intimidating to some small business owners. One suggestion would be to send the documents out ahead of time to the potential client. If the individual is not a particularly good reader, this gives him a chance to have someone go over the documents with him.

They may want to have their attorney read the documents. You need to be careful about making any changes that their attorney would suggest because their objective is to protect their client, not you. Always know ahead of time which items you can be flexible with before their attorney calls. If your potential client says that they will only sign the documents when you make all the changes their attorney requests, then my reply to them is

go have their attorney factor their receivables! You are the one at risk -- yourself!

Another, more sinister, reason some may be reluctant to sign is because they don't like what the document says about penalties, remedies, defaults, etc. If their reason for factoring is less than honorable they won’t want to expose themselves to much scrutiny or liability. Your documents are your first line of defense. If they won’t sign them then the documents have done their job.

Ken Earnhardt
KLT&J, Inc.
843-971-3883 Off
843-856-3927 Fax
www.kltjfactoring.com

Anyone who has applied for a business loan or line of credit from a bank will find factoring documents to be less in number and easier to understand. Factoring approvals are also given much faster than those for bank loans. If someone has been through the gauntlet of bank financing, they usually are not put off by requirements to establish a factoring account.

That’s not to say factoring contracts are simple. I've seen set up docs for larger factoring deals in which the contract alone as long as 17 pages (mine is just over 3). I’ve also seen them printed in extremely small type, in which the font was as little as 4-point are either extremely trusting, desperate for cash, or both. They very likely just give such docs to their lawyer to approve and don’t read them at all.

While extreme thoroughness is no doubt wise for large deals, it can kill a small one quickly. You must balance your need for security with what a reasonable client will accept. Ordinary people often view most legal documents, especially if there are more than one or two, as a bunch of legal mumbo jumbo.

Clients of any size need to appreciate the risks factors take. When funders provide money to strangers, they understandably want to cover as many bases and close as many loopholes as possible. That’s not only reasonable but sound business practice. A good question to ask a reticent client who balks at what he considers excessive documentation is this: "If you were providing money to a stranger, what would you want to know about this person, and how would you protect yourself?" When the tables are turned that way, hesitant clients usually understand why the paperwork is necessary.

If they are still not inclined to factor, that raises a red flag. They

probably don't need the money as much as indicated earlier. Such a person won’t factor much and thus won’t be much of a client. As Ken suggests, there’s also the possibility they he plans to relieve you of your money, though many crooks will sign anything because their intention is to completely circumvent the law in the first place.

In my experience, clients who really need money are willing to sign legal documents which they realize protect the factor. Some see the paperwork as perfunctory and will literally sign just about anything to get the cash. They understand that’s a part of doing business and don’t really expect to have problems with their account

I spend a fair amount of time with new clients going over my documents. I make a point of reviewing and summarizing each document, putting its purpose and implications in my own words. I go over the A/R Purchase Agreement (contract) section by section. All of this takes about 30 to 45 minutes, but by the time we’re done the client clearly understands what he’s agreeing to, has had all his questions answered, and almost always feels more comfortable signing. This also prevents problems from developing down the road which result from misunderstand- ings. When you clearly spell out the “rules” right from the start, you’re eliminating 80% of future problems. It’s time very well spent.

If someone backs out of factoring solely because of the legal documents, you most likely don’t want them as a client in the first place. Be glad the relationship ended before it became a problem, and move on.

Jeff Callender

QuickTips

If you start loaning money to clients, you won’t make as much in interest as you would from factoring (even if they pay you back), and you’ll have less factoring money available. You stand to lose a lot in the long run if a client can’t pay back your loan. Remember, factoring clients usually don’t qualify for bank loans; that’s why they’re factoring.

When you buy invoices, you’re relying on the ability of the customer to pay, whose credit is good. When you provide loans, you’re relying on the credit of your client to pay...whose credit is probably not good. This is all the more reason to stick to one thing and do it well: factoring.