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Chapter 1
Introduction
For Whom This Manual Is Written
 This manual is for two types of
people: the factoring professional
who would like to increase business
by acting both as a factor as well as
a broker, and the individual who
would like to learn to factor small
receivables as a supplement to
other income and/or investments.
There is a large amount of business
right in your back yard with clients
whose receivables are too small for big factors to find
profitable. This creates a perfect niche and a big market for
the little guy: you and me.
The next chapter is for those new to factoring. You’ll find a
general description of factoring, what businesses it can help,
and how it can help them. While the factoring industry is
sophisticated and competitive, there is at present a huge
market for factoring small receivables. Small factors who are
aggressive, prudent and knowledgeable can make a good
income. This manual is intended to help the beginning factor
get his or her business under way and further develop those
who have already started.This manual is for two types of
people: the factoring professional who would like to increase
business by acting both as a factor as well as a broker
consultant, and the individual who would like to learn to
factor small receivables as a supplement to other income
and/or investments.
There is a large amount of business right in your back yard
with clients whose receivables are too small for big factors to
find profitable. This creates a perfect niche and a big market
for the little guy: you and me.
The next chapter, “What Is Factoring?” is for those new to
this form of alternative financing. You’ll find a general
description of factoring, what businesses it can help, and
how it can help them. While the factoring industry is
sophisticated and competitive, there is at present a huge
market for factoring small receivables. Small factors who are
aggressive, prudent and knowledgeable can make a good
income. This manual is intended to help the beginning factor
get his or her business under way and further develop those
who have already started.
This book has one theme: you can have a successful
business by factoring small clients that larger factors won’t
accept. The pages that follow show how.
My Story
In the early 1990’s I had been a Presbyterian parish pastor
for 14 years and served three different congregations in
Washington state. I was in my early 40’s and realized parish
ministry was not what I wanted to do with the rest of my
working life. At the end of 1992, I left the security of a
monthly paycheck and a familiar, significant role in the
community to look for something I was missing: time with my
family, a different way of helping people, a chance to work
for myself at home, and a means of providing better income.
After nearly a year of working for myself, I received a letter
inviting me to a free seminar that described something called
“factoring” – a term which was completely new to me. I went
, heard an interesting, smooth presentation and decided to
enter the industry. The organization’s introductory tape said
you needed three things to succeed: a genuine liking of
people, a desire to help them, and being in a transition in life.
These described me perfectly and I was more than ready to
get started.
I attended training in January of 1994 and began working the
business part-time. In August I went full-time and continued
this way for the next five years. Over that time I experienced
great success, but also very significant factoring losses. I
came to painfully appreciate the risks that lie in the
underbrush, along side the treasures that await small factors.
Smarting from my “education,” I left factoring other
companies’ receivables and then owned a sign shop franchise
for a year. Soon I was factoring my own receivables, which
showed me personally how factoring helps small businesses
when used correctly. Later I worked for a year as an account
manager in the operations division for a large factor. There I
learned first-hand how the “big guys” manage accounts,
which further refined my factoring procedures.
Then, suddenly and unexpectedly, the operations office in
which I worked was significantly downsized (and later closed)
, and several co-workers and I were summarily laid off. We
went to work as usual one day, were called into the
manager’s office, and without fanfare given our two-week
severance checks and told to take our things “and go home
now.”
This was my final look back at working for corporate America,
and in particular for someone else. I re-started my factoring
business incorporating all the lessons learned. I also began a
new publishing company, having learned first-hand the value
of self-employment with multiple streams of income. I set
about writing several books, which combined with the
factoring, have produced very satisfying success and
personal fulfillment.
Now I am factoring my own clients again. My time is an
enjoyable blend of factoring, consulting with/teaching small
factors, writing, and speaking. The book you are reading is
the culmination of all these experiences.
How This Manual
Came to Be Written
Back in the mid 1990’s, about a year after working part-time
and then full-time as a broker consultant, I had spent a LOT
of money on advertising and running the business and still
had nothing to show for it. I ran across an ad on the Internet
– a far cry from what it is today! – that caught my eye. It
was a “Factoring Manual” entitled Accounts Receivable
Factoring Manual (©1993) and written by Joseph Casano of
Gulf Coast Factoring in Pass Christian, Mississippi, who had
worked as a small factor for five years.
I was amused that the only mention of brokering (compared
to my training manual’s exhaustive tome) was one paragraph
that said, in effect, you can get nice finder’s fees from large
factors by referring bigger deals you can’t fund yourself. End
of brokering education. The rest of the manual provided the
basics of what you need to know to factor small deals. I
found it very helpful for it gave me the courage to dabble in
this on my own.
Factoring a few small deals quickly showed me that broker
consultants experiencing the same problems I did can
nevertheless be successful as small factors. So can people
who are interested in entering the factoring business to
supplement regular, investment, or retirement income if they
are willing to learn and will do what it takes to make the
business work. What it takes is some guts, bucks, common
sense and a healthy dose of caution.
The first two editions of this manual were written specifically
for trained factoring broker consultants. The second edition
added a section on choosing a bank and another about how
much money is needed to factor. New chapters included “Co
-Factoring” and “Factoring Software.” Also added were more
form samples and an index to charts.
By the time the second edition was circulating, I discovered
many readers had no training or background in factoring. The
third edition began with a new chapter, “What Is Factoring?”
with introductory information for this wider audience, plus
guidelines for planning your business in a chapter called
“Charting Your Course.” It also added the chapter “Marketing:
How to Find Clients,” another chapter “Common Mistakes,”
and updates to the chapter “Factoring Software.”
The fourth edition added a means of calculating your
company’s profitability with the new chapter “Break-Even
Analysis,” which included numerous diagrams to explain the
step-by-step process. Another new chapter, “Due Diligence”
(greatly expanded from a section in earlier editions), provided
a discussion of how to limit your risk when considering new
clients. The chapter “Factoring Software” was updated, as
were several forms in the chapter “A Sample Factoring
Transaction.” With the additional information, the order of a
few chapters was changed for more logical flow. Finally, a
Glossary was added.
The revised fourth edition (and first eBook edition) provided
updates to the chapter on factoring software, as well as
updated verbiage throughout the book bringing it into the
new millennium.
The fifth edition added three new chapters entitled “Credit
Reports,” “Preventive Maintenance,” and “Factoring
Resources.” It also added information to the chapters
“Marketing” and “Common Mistakes,” and further updated the
“Factoring Software” chapter. This edition also integrated
numerous web links throughout the book to sites beneficial to
small factors, which are links in the eBook version.
The creation of Dash Point Publishing, Inc. accompanied the
fifth edition and with it the publishing company’s web site, DashPointPublishing.com, where the my materials can be
purchased online. Also, SmallFactor.com matured as a
significant portal site for small factors. Finally, with the fifth
edition was launched a free e-zine called FactorTips
(FactorTips.com).
The sixth edition divided the book into four Sections and an
Appendix, a format similar to the other books in The Small
Factor Series. This edition added a great deal of new
material, as well as many updates throughout the book.
Three new chapters have been added: “UCCs,” “Factoring
and the USA Patriot Act,” and “Bookkeeping with
QuickBooks®.” Six chapters were updated with new or more
current information, and two articles from the e-zine FactorTips are included in the Appendix.
These changes made the sixth edition over 430 pages in
length, well over a hundred pages more than the previous
edition. Despite these significant additions and improvements,
the retail price of the book was reduced by $20.
What’s New in This Edition
At the suggestion of readers, the seventh edition has
returned to the spiral binding used in the second edition,
though it has retained the six by nine inch size. This makes
keeping the book open for easy reference much more
convenient.
The new chapter “Banking and Funds Transfers” was
previously a section in the chapter, “Bits of Wisdom for the
Small Factor,” and now has been expanded considerably,
enough to warrant its own chapter. It includes much new
information on both subjects in the chapter’s title. A new
section has been added to the “Bits of Wisdom” chapter as
well: “How to Make Your Three Most Common Office Tools
Highly Efficient.”
The chapter “Factoring Software” has been completely
rewritten and includes the software product FactorFox.
Rather than trying to cover other packages extensively, this
chapter simply mentions them with contact information.
Updates have been applied to the chapters “UCCs,” “Due
Diligence,” “Factoring and the USA Patriot Act,” and
“Factoring Resources.” A Due Diligence Checklist has been
added to the “Credit Reports” chapter, and the chapter on
the Patriot Act now includes the complete text of the two
sections of the Act that pertain to factors. The other
chapters include numerous updates of web sites and web
information on these subjects, which constantly change.
Terminology has been updated throughout the book. What
were extensively referred to as “factoring fees” in previous
editions – the income factors make when buying invoices –
are now more accurately called “factoring discounts.”
Likewise, many of my factoring practices which continue to
evolve with time and technology have been brought up to
date as well.
You will find within this manual the nuts and bolts of factoring
small receivables and some practical wisdom that has helped
my business. Let’s roll up our sleeves and get started.
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