Welcome And Why Factoring Matters

SPEAKER_01 0:00

Um ready to get the insights tube on equity funding? Tune in to TBJ Equity Funding Insiders Podcast for an in-depth look at what it takes to access financial capital and maximize your investment. Hear from experienced professionals, including bankers, underwriters, loan officers, and industry experts, as they share their unfiltered stories and valuable lessons on securing funds.

Travis’s 20-Year Path In Factoring

SPEAKER_02 0:45

All right, we want to thank everybody for coming to our series of Giving Power to the Business Owner. And today we have a special guest. We're actually going to be talking about factoring lending, basically, or finance. I know the guys you all kind of, uh Travis, you guys kind of call it a little different. But there you go, we want to actually welcome Travis to our show, and we are very excited about what we have to say. So let me say something a little bit before we get started. One thing we find out there are so many different loans out there that you could do, so many different instruments that you can do. We're finding out as loan brokers here in Texas that a lot of people are not familiar with how the factoring works. Uh, you do have those industry that really know, but we want to introduce that to a lot of people to know it is a great alternative uh for you. And that's what Travis will go through. He's gonna tell us a little bit about it and how does it work and how do we need to use it, which is really good. And so, what I want to do, Travis, besides welcome you to the show. I would like for you to introduce yourself. Give us a little background on what you have, and we can go from there without questions.

SPEAKER_00 1:48

Yeah, thanks for having me. I really appreciate the opportunity. You know, factoring itself uh and helping small businesses is a passion of mine. I've been doing it for quite a while, about 20 years now. Um, you know, I started in factoring with a small finance shop. We were kind of independently owned. Uh, we had about 20 employees, uh, and I started as a collector there. And what my job was was to basically collect on companies' accounts receivable. And uh, you know, I have lots of crazy stories from that, but um, that's just one piece of it. You know, I remember calling uh Delhi's in New York asking them about invoices, and it was during lunch rush hour, and they had no time for me, and that didn't go well. Uh, but you know, um, so after I did collections for about a year, I moved up to an analyst position. Um, and my my what I did there was basically, you know, a company would send in these invoices. Uh, then as an analyst, what I would do is I would go through all the documentation, whether it was bills of lading, proof of deliveries, timesheets for staffing companies, all sorts of different stuff. Um, and so I would go into those invoices and take a look at them and make sure that they were good for invoicing. Right. Um, eventually I moved up uh at that place for um a relationship manager position. And then that's kind of the position that a lot of uh businesses interact with uh because basically it's your job to manage that relationship, almost like a banker uh in a lot of ways. You know, we're learning about the business, learning about their business, um, you know, managing that relationship and making sure that, you know, the loan is performing well and all that kind of stuff. Um after that position, I moved over to a bank that does the same thing. So, you know, banks are very different than independent factors. We'll get into that in a little bit. Um, I managed a pretty big portfolio, um, something close to home to you, uh, oil-filled services. It's a great industry within factoring, and we do a lot of business within oil-filled services. Um, after that, my journey kind of took me a little bit different route. I became a customer service representative for one of the major softwares in the factoring industry. Um, and so I was able to interface with a lot of different lenders, um, you know, over a hundred um independent lenders, large banks, and everywhere in between. So, you know, my industry knowledge over the years has gotten me to the point where I know a lot of people, I know what they're doing, and I generally know how factoring works. Um currently, right now, I am director of sales for a factoring company. Um, so we do, we work with small businesses every day to try and find the right solutions for them. Um, factoring isn't the right fit for everybody, uh, but again, we'll get into that in a little bit and just want to, that's a brief um snapshot of my career within the industry.

What Invoice Factoring Actually Is

SPEAKER_02 4:36

Thank you so much. And like I've already told you, that's why I'm so glad you came. You have a wealth of knowledge about factory, and and that's what we want to actually talk to about. So to get this started, what exactly is invoice factoring? Because I noticed you mentioned that, and how does it differ from traditional bank loans?

SPEAKER_00 4:54

Okay, so with factoring, there's a lot of different words for it. Um, some people call factoring the F word, um, and and people don't like using it. Um, I say factoring on way too much, um, but you know, factoring is invoice uh receivable financing, AR financing, anything you want to call it. Um so really um how it differs is we're taking invoices that you generate as a business to another business. And instead of waiting for 30, 60, 90, I've seen 120, 180 days even. Um, what we'll do is once you've completed that work, what we're gonna do is send you a percentage of that full amount of your invoice immediately. So it's like you finish the work, we're gonna pay you in lieu of the customer, your customer paying you. And then what we'll do is on the back end is we'll go collect on that invoice at once they're ready to pay it, and then we pay back your loan and we give you the remaining balance left. So we'll kind of get into loan structure and things like that. But that's as simple as it is. Basically, we're unlocking that cash flow that's tied up in your accounts receivables immediately. And that's a real pain point for a lot of businesses out there.

SPEAKER_02 6:09

Exactly. Even knowing that I know, and you and I have talked about it. Banks used to do this long time ago, where they provided this service. Now you can't go in the bank and get them to say, Hey, I got this invoice, can you give me some money? So that's where you guys come in at because people don't know you an alternative to that. And I don't know if I want to say alternative. I mean, you all are it. I mean, because the banks is not doing it, right? So from what I gather, that they're not doing it because we've actually tried that. So I'm thinking with you guys, people need to understand that when you say, you know, and this is the part I like, and I want you to explain this if you would. It's not necessarily based on the client, and maybe we need to say ABC Company is the one that's coming to you, and they're gonna bring you a housing. I mean, I'm just a government contract. That's what we're gonna just say. So it's gonna weigh more on that contract than it is on ABC Company. Am I correct?

Banks vs Independent Factors

SPEAKER_00 7:02

Right. So let's say there's a lot of different examples. Um, so factoring companies are most typically worried about how your accounts receivable perform. They're not worried about your credit, they're not worried about how long you've been doing business. Typically, depends. We'll get into it. But really, all they're looking for is good, solid accounts receivable. So, for instance, uh, we helped a guy that got right uh was right out of the military. Uh, he didn't have any credit. Um, the banks wouldn't even look at him because he didn't qualify for an SBA loan or anything like that. So we were able to take a look at it. And he didn't have any credit because he was just out of the military. Um, and we got him set up and was able to, you know, fund him on his in his first invoice and be able to process that invoice, get the shirts to his place, get them uh printed and shipped off to the military, and then you know, get that invoice paid. So where you know, if you have poor credit, um if you have limited credit, a lot of limited credit, right? Um, if you're a brand new business, a startup, you know, those that's the op, you know, you have limited options, and factoring is a great option for you, so long as you're generating invoices to another business.

SPEAKER_02 8:18

Exactly. And I want everybody to make sure you understand he's saying, like, when you actually start, like for the instance of the guy you just mentioned, he actually had a startup business where he was doing t-shirts. So now you got this contract and you you got this order, and so you can get it done, but then you got to wait, and that means it holds up your money where you can't go in something else. That's when we need to reach out to you guys, right? So I'm thinking if you would, can you walk us through a typical step-by-step process of how to factor and approve uh a fund invoice?

Approval Focused On Your Customers

Step-By-Step Factoring Process

SPEAKER_00 8:50

Yeah, absolutely. So um the whole process from start to begin is typically either, you know, your Jackie will reach out to me about you, or somebody will reach out to me, or you can reach out to factoring companies directly. And what they're gonna do is they're the salesperson that you talk to are gonna basically ask you a lot of questions about your business, how it operates. We're gonna ask so many questions, you're gonna be sick of us by the end of it. Um, but that's really important for us is to understand your process and how how it works. So, you know, initially we're gonna talk to you, make sure, you know, do you have outstanding invoices? Are you going to have outstanding invoices? Who are you selling that product or that service to? Um, you know, basic information. And then what we're gonna do is we're gonna gather, you know, your customer list, um, your accounts receivable, your accounts payable, um, a handful of items. Uh, typically, you know, this is I'm talking in generality. So um the factoring company wants to look at your accounts receivables because that's that's the asset that we're lending on. Just like a home lender would lend on your home and take that as an asset, we do the same thing, but with invoices. Um, so once we kind of get through that information and and look for an approval and say, okay, you know, we think that there's a path forward here. What we'll do is we'll do, we'll kind of get into our deep dive underwriting process. So we're gonna look at your uh account, you know, accounts receivable, accounts payable, your financial statements. Uh, we're gonna want a copy of your driver's license. Um, I have all the documents here. So articles of incorporation, um, contracts with your customer are a big deal because those contracts basically are gonna tell you how and when your customer is gonna pay you, right? And so that contract is very important to us, making sure that there's no offsets on those accounts receivable. And if there are certain things or hurdles that we need to jump, uh, we need to make sure that we structure that deal properly so that uh not only are we protected, but you're protected from not overadvancing you too much money on the receivables because of a contract or something in the contract. Uh, we're gonna want your insurance policy, uh, your workman comps policy, if you're a staffing company, um, and then kind of all that information, what we'll do is we're we're gonna take all that information, we're gonna do our general underwriting, um, and then what we're gonna do is once we've made a decision where, yeah, I think that we can move forward, um, then we get into the actual process where we're gonna talk to some of your largest customers, if not all your customers. Uh and a lot of people have apprehension to that, Jackie, because you know, they've developed that relationship over years and years and years, and they've worked hard, and that's their bread and butter. So I understand there's a lot of pain points uh with factoring invoices, but just know we aren't here to ruin your business or your relationship. We want you to succeed. And I think that's that's the big part because honestly, if I if I have a factory or a company that's factoring with us, I don't want them factoring for forever. They need to graduate to bank financing and get better pricing on their financing, right? We're never gonna be your first option. A factoring company will should never be your first option, but we're there in case you need it. Um, so our goal is always to get the customer back into a banking situation. And, you know, people call the F-word for a reason. Uh, you know, some people say it's a death knell for a company or whatever. And that's that's just baloney because I've seen clients go from startups to national names that you would recognize. Um, and on the flip side, yeah, companies do go out of business, but that's you know, that's that's general course of business.

SPEAKER_02 12:41

Well, let's go back a little bit before we go further. Because what the thing is with us being loanbrokers, we have dealt with people with factoring, you know, you know that we've talked on it. And so this the first thing I want to say, we provide a list of of everything. And then if you guys want to put in the chat, and I actually see this like a general questionnaire is basically what it is, okay? So you can put in the chat and I can send that to you where it asks those general questions that get that to you guys, and they're not so uh intrusive as people think, it's just basically giving a snapshot of what you look like as a business, and so that's one thing I want to mention also contracts. People have to understand a lot of people do contracts, but they don't do them right. Like you made the comment, you need to see how are you getting paid? You know, what's the stipulation? Can you transfer this over? And see, we don't read that. So it's really important for you when you start getting this type in business, period, not just now, just that. Contracts are really important how they are set up. So, one, you need to get one. Okay, let's say let's get a contract, and you know how that is. But the second thing you want to do is make sure it's written in a way where you can utilize it when you need to. Either, as my attorney said, we had an attorney come in that talked on it. Is that the contract where we can actually go with the litigations? It's properly written where we can, and also another lender can actually use it for factoring, you know, you can use it with another lender for factoring. So I do want to mention that while you're saying that, uh, for us the layout or everything. So other than that, is anything else or the lot other layout before I go to the next question we have?

SPEAKER_00 14:12

No, you know, you make a great point about those contracts. A lot of companies will not allow you to factor because they've had bad experiences or whatever, you know. So carving out a factoring piece in your contract, if you know that's what you're gonna do, you can just simply add something in there saying, um, this is notice to uh the other party that these accounts may be assigned and sold to a factoring company. Um, so you know, if you know that you're gonna be doing factoring financing, it's a great one-word or one-sentence um piece that you can put into your contract saying, Yeah, I might sell and assign these to a factoring company. And then that protects you and allows you as a business owner to go and get the financing you need.

SPEAKER_02 14:59

You need now. Let's say this too on that, is that let's talk about, and I mean we're probably skipping my little questions, but I want to ask saying that you say you should prepare yourself if you may need to use factoring. What type of businesses are best for factoring?

SPEAKER_00 15:15

Okay. So uh literally any business who who sells product and invoices on terms uh could potentially qualify for factoring. Um examples.

SPEAKER_02 15:30

Give me a few examples.

Contracts That Enable Assignment

SPEAKER_00 15:31

So low-hanging fruit transportation is the absolute biggest piece of factoring. So if you're a transportation, if you own a truck, um, it's highly likely that you're factoring already. Um if you own a small fleet of trucks, it's highly factor, highly likely that you're factoring already or have some sort of relationship like that. Staffing works really well, right? Um, you have people uh working for another company. Uh, after that two weeks, you have to pay them, but that company's not going to pay you for 30, 45 days. You still have to make that payroll. Um, you know, factoring staffing typically gets higher advance rates because it's very cut and dry. It's, you know, this is how much this person is supposed to get paid. So um it factors very easily. Okay. Um staffing. I like government receivables. Government receivables are huge to some factoring companies. Um, so if you have uh you know contracts with the Department of Defense or any other government entity, um, you know, we can really do a lot of work on that because um, or or other companies can as well, because there's a certain law uh that puts that all into place, and those receivables are guaranteed. So we we specifically like um military or um not military, but government work. Um some things uh and I think this is a good point to talk about factoring companies and how how much they differ from each other. I'm going to do very different deals in general than some of the other people that I speak with on a daily basis. And that's simply because they're more comfortable with a certain industry. So finding the right factoring company is a big deal, whether that's a bank, an independent lender, or whatever, uh finding the right factoring company for your business is important. Uh, for instance, uh my company uh doesn't do medical receivables, but I know companies that do. Um so really finding that right factor and finding that right fit for you as a business owner is important.

SPEAKER_02 17:32

Um you're saying basically we need to match up the industry, our industry, with the factoring company, because not all factor companies are gonna do what we're gonna do. So that might be the first question we need to ask them. Okay.

SPEAKER_00 17:42

So some factoring companies only do transportation. Some only do medical receivables, some only do yada yada yada.

SPEAKER_02 17:50

Right.

SPEAKER_00 17:50

Um so there's transportation factors, there's general factors, which in our world general means anything but transportation, uh, then there's um factors who would who would who will do both.

SPEAKER_02 18:04

So we have that. So okay, so let's talk about the qualifications and eligibility. Now you did eligibility. Did you did talk about it a little bit, but let me ask something more specific. So, what are the top criteria factoring providers use to qualify a business, especially for those with weaker credit but strong customers?

SPEAKER_00 18:23

Yep. So, what we're gonna do is in that underwriting process, we're gonna run credit checks on all of your customers to make sure that those are strong. So, you know, that is that is the key piece, is those bona fide strong accounts receivable to other companies. Now, you could be selling to another mom and pop shop, and we might be able to get a$5,000,$10,000 credit limit. Um, so just because you're selling to another small company doesn't automatically eliminate you from factors.

SPEAKER_02 18:52

Now, when you when you excuse me, when you said the credit check is not on the your my customers personally, it's their business, right? Because you all can go and okay, you tell us where you go to go look those businesses up, they credit.

Best-Fit Industries And Niches

SPEAKER_00 19:04

Yep. So um depending on who you're working with. Uh Dunn Bradstreet is kind of the industry standard, right? Um in some experiences, you know, we use uh credit insurance companies like um Allions or you know, we use a tradius or whoever. Um so you know, sometimes factors will use credit insurance as a way to obtain credit limits. Uh and that's good if the factoring company is going to put the bill for you because then that's added protection for you as a as a business owner, and you're it's not coming out of your pocket. Okay. Um so you know, that bona fide accounts receivable typically, you know, credit scores can you can even get down into the 500s, and and you know, some factoring companies won't care, some will. Um, it depends on if they're a bank or or if they have certain whatever their credit policy looks like. Um, but really, if if you own a business and you generate invoices to another business, that's a pre-qualification for factoring. Um, so typically you're gonna need terms on those invoices, and typically those if they age out past 90 days, that's where it gets a little bit hard for factoring companies to do. Um, so that's kind of what we're looking for mostly uh in lieu of you know strong personal credit, um, you know, strong business history, that kind of stuff, which are what banks or you know, the SBA or other lenders are looking at.

SPEAKER_02 20:30

Right. So we want to keep your invoices uh then below 90 days. You want to have your client, your your customer list where your customers are paying, you know, within that 90 days, that helps you to be a great, you know, prospect for factoring. Okay, I got another question. Um, which industry do factoring specialized often target? Now I know you mentioned like the trucking and staffing, and what type of invoice qualifies best? So you didn't mention those, but what type of invoices qualify best, though? Is it a certain amount, like 5,000 minimum, 10,000 minimum? What is it?

SPEAKER_00 21:01

So that depends on each factoring company. Um, typically you're gonna be based on a credit limit, and most factors, I would say, start about$25,000 credit limits. Um, and and that's a very uh you know, a very small credit line within the industry, but that's kind of the minimum that any factor needs to really get going on this. Um, and that's because you know it factoring takes a lot of back office work. We have people looking at, you know, it's it's a very manual process still, um, uh even with in this world of AI and everything, and everybody's trying to figure it out, but it's very it takes a lot of time, a lot of manpower to get all that stuff taken care of and done. So we want to make sure that you know we're not you know making a bad business decision for us if you know you're only submitting all invoices uh once a week. So as far as the actual invoice size, I think I've factor smaller invoices down to$100 individually. So now really we like I think in general factoring companies like you know decent sized invoices, chunks, but really anything will do so long as it fits within our credit profile.

SPEAKER_02 22:17

Now I have a question because I did have a client ask me about it. I told him I would ask you as well because they're contemplating doing the factoring and they had a good question. Question is when when is it best do you want as a factoring company, they give you one invoice or you want all their invoices that they have outstanding. How does that work?

Credit Checks On Your Debtors

SPEAKER_00 22:37

Again, that's gonna that's gonna vary factor to to factor. I think the biggest piece here is uh talk to your talk to the salesperson that you're working with, ask them that question because that question is very important. And the reason being is when if you assign a customer to a factoring company, you might not have to finance all the invoices for that, but all the payments need to go to the factoring company. And the reason is is because that's how they get paid back. So if you were to uh you know because when you start this up we're gonna say hey you know we're gonna be factoring these invoices for Jackie's company um the payments now need to come to us on this account. So um when those payments come to us we make sure that we get those payments and pay off the invoices. Now if we get money on an invoice that you didn't finance with us, um, what we do is we send that money back to you without taking any fees or anything like that. Right. That's what in the industry we called a non-factored invoice. And that just simply means we didn't factor this but you still received your payment on it. So this is going to go into your like your checking account with us and then the next time you request money we're gonna send that money to you.

SPEAKER_02 23:53

And so we need to be real careful and understand this too that when you talk factoring it's really for the companies that factor and work for and like if you're a staffing company and you have a clientele those people already used to people factoring. So they it's not like oh what is this it's not they are already familiar with that. If you have a contract from the government they're used to people calling them on that so we need to know not to run from that just because we're not familiar with it. Bigger companies and startup companies have used this and they use it a lot. So I do want to put that in there and iterate it to everybody to know that's how that would really work. Let's go with our next one. So what are the common mistakes do business owners make when they are starting a factor in and how can they avoid them for a maximum benefit?

Lines, Limits, And Invoice Sizes

Whole Customer vs Single Invoice

SPEAKER_00 24:37

Okay so the first one um I I think the biggest thing is make sure you have enough margins in your profit to pay for the financing because the financing can get pretty expensive. So you know you need to make sure that you're running a successful business within that. In addition you know some other things that have happened in in my heyday so we'll start with a factoring line and we finance a bunch a bunch of invoices but maybe there's a payment that slipped through in the meantime between the time that we funded and the time that the end company was notified that hey we're supposed to receive all these payments. So Jackie let's just make this example let's say we financed you on this invoice but you still got the check on it you know you cash the check uh and forget to tell the factoring company that's the worst thing that you can do other than outright fraud. So I just want to I want to drive that point home. That's what we call conversion or converting money. And um so basically what happens is let's say we paid you$1,000 on an invoice we gave you$800 up front and then you also got the$1,000 payment for that invoice. Okay so that money was supposed to come to me so I can pay off your loan and send you out the balance. Now you've kind of double dipped is is what we call it and that's that's called converting funds and that's a huge mistake that's made a lot of times and it can really things can go awry very quickly with your finance company if you do that. So if you do get a check in the meantime after the first funding let your factoring company know say hey I got this do you want me to send it to you how do you want me to get this to you so that's just kind of a another example of mistakes um not reading the contract that you have with your factoring company is also a huge liability make sure you know it some factoring companies uh want a yearly contract and that's pretty typical within our industry some don't some lock you into longer contracts so make sure you really understand get your business attorney involved um you know it it's a legal document you should definitely have it reviewed um and even though you know you might be desperate for that financing it's it's gonna save you a lot of pain in the long run. So make sure you know what you're saying. Let me see if I got this right so what you're saying Travis that you so you do have to have all the contracts all the invoices so once this we once I start invoicing with you factoring with you with my invoices I have to give you all my invoices that's coming through even the non-factor ones too um you don't have to finance uh we need the payments coming in let's clarify that so if you finance uh with um let's say you own a company and um you're invoicing me uh for work that you're doing for me all the payments that I send to you now need to go to the factoring company okay okay um so that's good so if you finance with one invoice with one customer you want all those payments going to the factory now not the other three uh clients I have you don't want that money you just want the one we factor it correct okay okay all right we'll make sure we got that cleared up okay that makes a lot of sense okay let's go to our next one now based on your years of experience okay what strategies have helped clients scale their business that uses this too right so you know there's a lot of ways to to help you scale with this so um you know getting the injection of cash immediately when you need it is is a big deal right because you know you can talk about you know finance and and all that kind of stuff but the fact of the matter is is you're getting paid immediately on this invoice so that means that you're also paying money to finance the invoice so make sure you're using that money to grow your business um make you know maybe buy supplies um you know uh you know product or outreach to new customers use it to grow your business um try not to use it to finance losses uh I mean it it can it can work uh but you need a path forward whether that's you know raising prices or or cutting costs um you know finding a way to make that work um in the long run uh is going to help your business and be exponentially better for you okay great okay let's talk a little bit about the cost and the financial impact of factoring okay all right so what factor fees should business owners expect and then we have a question after this okay what factor fees should business owners expect from providers and how do they calculate the true cost compared to other finance options okay so this this is a broad ranging question so financing costs I'm I'm gonna give you a really big range here can go anywhere typically from 10 12% um a larger line with an established company up to you know 40 50 plus percent it just depends on the factoring company the deal that you make um and um you know how long you've been in the business typically you're gonna range anywhere in the teens to 20s and there's you know depending on the contract and there's a whole bunch of stuff that can be calculated into how much you're paying um but really there's gonna be one or two fees one or two main fees one is like a uh a mortgage interest rate almost um where you're paying a percentage based off your loan amount uh another are invoice fees which are much more common in factoring so you know for instance let's say it's 2% for 30 days that is pretty typical within our world um you know some are going to be higher some are going to be lower it just depends on where you're looking at and so uh it's kind of hard to calculate I mean you could probably get an accountant and somebody way smarter than me but typically how I look at it depending on startup costs some factors will charge an application fee or an underwriting fee or an origination fee. So you got to calculate those in as well but typically you can just take the percentage that they're giving you let's say 2% for 30 days well if you multiply that by 12 it's about 24% now depending on you know exactly what else is in that contract uh and how quickly your invoice pays um you know that cost will fluctuate after you know depending on those scenarios okay let's go to we have a question from Miss Charlotte that which sounds brilliant which is a great one she's asking about the staffing she's a travelers from a staffing company perspective will it be per employee that's hired that you're actually doing that with or how would that work? Typically in my experience what they'll do is you know if there's only one employee working then yeah absolutely um typically if you know let's say you have 10 employees working for the company you'll invoice them after two weeks for all 10 employees now we're gonna want that invoice for all 10 employees but we're also gonna want those timesheets as well as our backup material. So depending on how you invoice you can invoice for one person individually or you can just send on the entire invoice and and they're the staff and got them working at different companies so if they all at different companies it doesn't matter they can just pick and choose which ones they're gonna send over to you is what you're saying, right?

SPEAKER_02 32:18

Okay.

Mistakes To Avoid And Compliance

SPEAKER_00 32:19

Okay, good all right that's a good one okay good question good question all right and thank you for that answer okay so our next one we have is uh basically how can a business owner prepare paperwork or would say customer details to get approved faster when it comes to factoring what's the paperwork we have yep so um minimum get the application back with any requested documents they have on that typically um application um you know accounts receivable accounts payable we kind of already talked about it um make sure you have three months of bank statements available they're gonna want to look to see you know how much um how much payments you are getting in to legitimately verify that business um your articles of incorporation any of those contracts that you have with your customers and then make sure you have your insurance policies your tax returns financial statements your operating agreement um driver's license copy we always need that you know Jack I did do want to take this opportunity to talk about um we we we see a lot of fraud within this industry unfortunately so we're not we're asking all these questions typically while we're gathering information because we're trying to prevent ourselves from all the fraud search out there right and it it makes it a worse situation for everybody because they're out there. So you know we do have to be very thorough about these type of things uh during the underwriting process to make sure you know you're a legitimate business. And so we're going to ask you for all that information. And if the more organized you are the more you know about your business obviously you're living it so you know it. And the more responsive you are uh depends on the timeframe on how quickly you can get funded. And that funding timeline can be you know it it ranges vastly I've seen deals funded in three, four days and I've seen deals that took a year to fund. So depending on on how tough it is, um how many hurdles we have to jump but the more organized you can be as a business owner and and you know responsive and even getting your clients to respond to us during our verifications and collections um that everything that you can do help us, we're gonna do in turn to help you.

SPEAKER_02 34:34

Help you and what we do we provide a list to let them know the lender's looking for this so you'll know what to pull together so we can get everything to them. As loan brokers that's one of our main things we want to make sure that the package is together where it makes it easy for you guys to pre-qualify them and to move forward with that. So that's something that's really important everybody want to know I no I want to ask also like we have in a a certain well I don't know if it's a surge but it's a lot of manufacturing that's going up in Texas okay so I haven't heard people talk on it as much but is manufacturing something you all would like to do these startup manufacturers and stuff?

SPEAKER_00 35:12

Yeah absolutely it definitely falls within within our box it also falls within a lot of other people's boxes. So you know tell you a story I I used to finance a steel fabricator. They would buy raw steel uh we'd go down to their mill see them roll it out and cut it all up and turn it into dumpsters and it's funny because I still see dumpsters with with their name on it out here in Salt Lake. So um you know that's a perfect example where they you know they're a manufacturer of of dumpsters and it it works well right because you know large uh waste management companies cities uh municipalities things like that takes days to months to pay you so that comes good that we can use that oh you're right we said government but like you said you like state and federal uh contracts at that point that's what we can do and what I like about this you and I have talked about it you can be like you talked about your guy in the military startup people that get contracts with a lot of contracts out there even though we have a lot of stuff going on we have had some purchase orders or uh we've had people with contracts that they've already filled and they're looking for money.

SPEAKER_02 36:17

So I know those things are something we need to look at the industry. And I have some brokers that's on here as well that they can be aware and that's why I want to kind of have them to come in and listen to you of how that works and what type of clientele that they need to kind of go after of so manufacturing something you said that would work really good with you guys.

Using Advances To Truly Scale

SPEAKER_00 36:35

And they can be startups right they can just be starting up for yeah depending on the factoring company um you some people will do startups other people won't so again it's finding that right factoring company but uh for instance you know uh we do for instance uh startups so um others won't uh the other thing that you mentioned was PO financing so some factoring companies will also do your PO financing piece um so currently I'm looking explain that PO because you know me and you talked about how we got that deal explain the difference bring that so uh within the accounts receivable process right you sometimes you have to buy something in order to get it to the end user um so in this instance I'm gonna use this um this gentleman in Las Vegas he owns an HVAC company um he has to install these giant uh water efficient coolers into municipalities casinos things like that um those machines he doesn't manufacture he buys them from a distributor um so this is a perfect example of where PO financing would come in and work in handy so what you can do is okay I have a PO let's say from Bellagio I don't know and they need me to reinstall this giant you know AC unit and but I'm gonna get a deposit from Bellagio but maybe that doesn't cover all the costs. So what you can do is find a factoring company who also does PO financing and they'll say okay this piece of equipment's gonna cost you$100,000 to buy the customer gave you$50,000 deposit we'll advance the$500 for you to get that release from the distributor. Now that's very early in the accounts receivable process right it will eventually become a receivable once it's installed. So what we'll do is okay we'll advance you$50,000 up front um when you bill this you know maybe you're billing$250,000. So once you've installed it we'll pay off that purchase order financing loan and then advance you more money on the accounts receivable right because you only need$50 for the small little piece for this piece. So basically it gets you your product released without fronting all the cash or you know typically it's really great if you can get your customer to put a deposit down to pay for the cost to get it released. But if you can't talk to your factoring company that could work and they might be able to do something for you a little bit earlier in that process.

SPEAKER_02 39:01

In that process okay that make that makes a lot of sense of the PO because now you just said I think I want to make sure I got it right. So the PO I don't have to have a deposit from the state to to do it I just if they doing it I just need to have that contract okay and then you all can put that and then I can get that ordered and done that's good to know because you know that's that's hard to find that is really hard to find so I think that's great. We got another question and it's uh it's about technology and data centers and IT cybersecurity would they be a good candidate for factoring and why so I am in discussions with a data center right now.

Pricing, Fees, And True Cost Math

SPEAKER_00 39:38

Salt Lake is a hotbed for data centers. We have a lot uh and we're looking to put in more um absolutely something that we can do so um this client is manufacturing I don't know something I know what it is but I don't want to say it uh a widget to go inside of a uh a data center and so what we're doing is we're gonna be financing those invoices as they install the certain things within the data center then uh we'll bill you know or they'll bill the data center and then they'll pay us so uh data centers um some technology again it all depends on those service agreements um and typically um if it's like a maintenance style like um I I used to be in in the software world where you know it's a it's an annual maintenance that can be a little bit harder for us to finance because typically those are prepaid um so that that's a little bit tougher to do uh but again talk to your factoring company if you're invoicing another business for services that you do I'm sure there's a factor that would would love to look at that and and and try and figure that out.

SPEAKER_02 40:46

Absolutely right and that's like our brokers they like I said they're picking out who they're going with. So I have some that's kind of focusing on that data and the manufacturing so you're saying those clients will be good and it's based on their customer list right of what they have. Yeah that's something we just have to kind of remember with that. Okay so so just real quick on that so this company that we're trying to finance they're newer uh they're they're just kind of starting up but they're billing these billion dollar tech companies so it's perfect right so yeah so that's how that can that work okay it sounds pretty good I love how all this kind of comes together so let's look at this what's the features that set top factoring options apart uh like the no fee setup or single invoice program so what features set them apart because I know you said it's a lot of them so what are some features?

SPEAKER_00 41:37

Oh man um so big banks yeah so um customer service I mean really get somebody who understands you and your business where you're coming from um you know customer service is key they should be responsive to you um throughout the process they should be helping you get through that process there's a lot of really wonderful people within my industry um that I've grown to know over the years and you know the people who make it long in this business are the people who have integrity um and who who value their customer relationships and value their clients so first and foremost find somebody who is you know is good for you but also you know pricing is an issue right um so pricing's gonna set uh other people apart you know banks who do factoring uh I used to work for a bank factor uh my wife currently works for one um and they're gonna be cheaper than us right um but we're able to to maybe be a little bit more creative get you a little bit more money on the advance rate so there's gonna be pros and cons to whoever you end up with. Finding somebody that you're comfortable with uh that you've built a relationship with that fits your structure that you need um you know that's kind of the key what you're looking for.

SPEAKER_02 43:02

Okay and we'll be trying to do that. Okay great. Well listen I don't know if anybody have any other questions. Like I say he's here so you can kind of ask them some questions. I know I had somebody was talking about construction. We've actually reached out to certain factors and they don't do construction. Do you guys you guys do construction right?

SPEAKER_00 43:19

Yeah a lot of people won't touch it um and it uh but some people will it just depends on their risk appetite and what they like so explain to us what construction factor look like is it like it got to be a sub or you can't do anyone that's doing draws.

SPEAKER_02 43:33

I mean we've it's so much stuff so what it would it in construction what does it have to be in order for you to accept a construction client?

SPEAKER_00 43:40

For me typically I've always subcon or done subcontractors. It's a little bit harder to do general contractors you know there's surety bonds and and all sorts of stuff that trip us up um so typically a sub um is is ideal um somebody who's installing something or working on something something with with milestone billing, not progress. Progress is a little bit tougher for people to do.

SPEAKER_02 44:05

And there's there's a minute, what's milestone and what's progress billing?

Staffing Use Case And Timesheets

SPEAKER_00 44:09

Okay, so let's let's say I am doing, let's make it easy. I'm putting uh I'm framing each floor um of this three-story building. Okay. Um maybe I've put in something in my contract where I'm going to bill milestone by floor completion. So once I've framed out the first floor, that's a milestone and I can bill at that point. Okay. That's a great example. Progress billing is just saying, okay, you know, we're getting near the end of February. I'm going to finish up what else I can do on this first floor, but it's not going to be finished, but I'm going to bill you for whatever I've done. That's progress billing.

SPEAKER_02 44:50

What you've done billing. Okay, gotcha.

SPEAKER_00 44:52

Right.

SPEAKER_02 44:53

So you like those you like, right?

SPEAKER_00 44:55

We like milestone billing and most factors like milestone billing because then it creates what it does is in the contract is it creates a definition of an acceptable place to invoice, which is what we like to see, right? This contract that you have says you can invoice once you've finished um the first floor. So you invoice and we're we're squared away because that contract allows it.

SPEAKER_02 45:21

Okay you like that one. That's the one you all would prefer.

SPEAKER_00 45:25

That's the one that we prefer. There are people who will do progress billing. Like I said it's finding that right niche and finding that right lender. And I think that's that's kind of an advantage with me is I refer out a lot of deals to other factoring companies because we can't do it. And I know that they're a better fit. We do it all we we do that all the time within factoring the people who've been around a long time.

SPEAKER_02 45:50

Okay well I know like Charlotte Mitchell which is so true Charlotte that uh we have a lot of construction going on in Dallas Fort Worth right now, which is true. But the biggest thing that we're seeing even we talk to them and that's why I brought you on a lot of contractors are not aware of how the factoring works and that they can actually use that. So just before we leave if you could we do want to focus on that a little bit more if you can give us some uh insights of how we can you know let these guys know how it works or something like that because you've been dealing with it. So how do we approach these contractors? And you're talking about not general contractors right we're talking about subcontractors. So what are you how do we approach those if we want to go out and approach them to bring them into factory?

Paperwork To Get Funded Faster

SPEAKER_00 46:30

Yeah you know I would just say so obviously with construction there's always some retainage held back till the project's finished right um so typically construction advanced rates are going to be lower than general factoring advance rates. They're going to be on that 60 maybe 70 if you're lucky 80% advance rate side. But typically you know a little bit lower advanced rate because we know there's that retainage built in and for those that don't know retainage is basically a percent 10% of the invoiced amount in case the general contractor has to fix anything at the end they hold that money until the project's complete um now once that's done I do have the other thing is is we we'll find a home for anything you know I have a company who is financing you know eight million dollars in retainage on this project. So even though I couldn't do it I know who could so um so typically uh you know make sure if you can add in milestone billing do it um uh make sure that you have you know good contacts with the general contractor in accounts payable let them know that you're gonna be factoring um but yeah typically uh if you can get that milestone within that contract it helps a lot of factoring companies out doing that okay and letting and let the letting the contractors the subcontractors know it's available okay well first of all again I want to thank you but I wanted to ask you just in case we're about to go to see if it's anything you would like our audience to know dealing with factory before we leave. Yeah you know it's it's a tool um and and it's it's meant to be used in the right situations. Don't be afraid of it there's a lot of negative negative connotations that have been out there for years. I would argue ever you know uh to the death that factoring can be used properly and uh you know it again your factoring company wants you to succeed because if you succeed they're gonna they're gonna succeed succeed as well and they want you to eventually leave to go get a big SBA loan or or something right we want you to succeed uh because if you leave us and you're still in business and you're still running along that means that that we've done our job uh we've put you in a position to succeed as a business owner and onward and upward from there you know and talk to your factory company be open about it say hey you know I eventually want to get back to a bank line um you know make sure you know your your agreement and when you can get out of it um and also they might be able to refer you to a bank we talk to bankers every single day because you know that's where a lot of our deals come from because the banks can't finance that so where do they go? They go they come to us. So we always want to get you back to your banker uh whoever that may be um you know that's always our goal we're all you know we're not in you know in it to see you go out of business or or anything like that. We want you to succeed. Okay well thank you thank you so much again which is showing factoring is another alternative uh to lending is it is it lending or you say funding somebody say you all don't put that with you all lending funding whatever it's all semantics it's like factoring and AR financing or invoice financing it's all the same thing at the end of the day.

SPEAKER_02 49:50

Well good well look we all want to thank you so much for being here and giving us information guys I want you all to know Travis is our one of our direct lenders for factoring so if you all want to get in touch with him you want to do anything just reach out to us because we do work with him uh on our factoring files that's why we want him to come in and talk to everybody and again like I said I want to thank everybody for being here I want to thank you again Mr. Travis for coming in and we'll think thanks for having me it's always fun talking to you and and uh getting to know you a little bit more so I know it is every time so we want to thank you too so what we'll do this will be available on our YouTube is uh TDJ Egory Funded Insiders will have this available as well as on the podcast any platform that you all listen to you actually can go and listen as well we will have some information available on him for anybody to reach out to us so we can get you started as well as the application that he has given us that we can that we have to give to you all as well.

Manufacturing And Government Work

SPEAKER_01 50:46

So until next time you all have a good day take care and we'll see you next time thank you we hope you enjoyed this episode of TDJ Equity Funding Insiders Podcast if you'd like to be a guest or get in touch with us please visit our website at TDJLLC dot net forward slash podcast or email us at podcast at TDJ Equity Funding Insiders dot net until next time take care