Dealbreakers!!

[cashfactor]

Hi Forum,
I have had 4 deals that have fallen apart and would like some feedback:
Please ask questions and comment****


1..This is a landscaping company that did work for construction companies and had a tax lien by the IRS in place...since the Account debtors were construction companies and the client had a tax lien...the deal fell through with a couple of factors.

2. This is a transportation company which had a small amount of receivables in the range of 5K......everything was fine till they found that the UCC filing fee of 400$ would be deducted from their first funding....very discouraging!!!

3..This is a janitorial company who was willing to factor their invoices but the Account debtor did not want to send payment to a third party and so the factor did not want to take it up.....finally when I wanted to ask another factor the client changed their mind about factoring their invoices.


4. This a security guard company which provided security to major apartment complexes. Everything was fine till the factor found out that the Account debtors were management companies managing apartment complexes....and backed off saying apartment complexes in general were not doing well in todays economy. After that I have not been able to contact the business owner (he is not returning my call..though he is still in business)....probably picked up another factor???

Looking forward to an interesting discussion.
Thanks,
Cashfactor

[cashfactor]

The post on "dealbreakers" is supposed to be a learning exercise to learn if there are certain strategies that could be put in place to make the deals happen. Being the few that we(Commercial finance brokers) are in todays economy this is one of the few places where we can brainstorm for solutions.
Thanks,
Cashfactor

[SBrown]

#1 - is a tough deal to do, in most any situation. Construction companies are tough to advance against, as the account debtor. Even though the landscaper may go into the job to do a simple installation, complete it, and be done, the reliability of being paid by a construction company, is hard to fund against.

#2 - probably should have been addressed up front. As a Factor, part of my initial discussion with any prospect whether direct or through a Broker, is what initial fees there are. In my case, a $500 fee is deducted from the first funding. If I see hesitation about this, I reiterate that it is for actual hard costs incurred in doing lien searches, business credit reports, and lien filings. If the prospect cannot accept that, I simply must move on. This often can be an indicator that the prospect may be more of a nuisance in the future, as an actual client.

#3 - a very common concern. The best way to mitigate it is of course to explain why this must happen, and garner their buy in to this. If that cannot be done, alternatively, a "block and sweep" account could be established at their own bank, wherein funds are mailed to the bank, and upon receipt the bank automatically ACH/transfers those funds to the factor electronically. The bank simply lock-boxes the funds on behalf of the client.

#4 - I do not understand why a factor would be apprehensive about management companies. They typically are excellent debtors to have, and they do not want the factor or client contacting the property owner for whom they manage the property for - explaining that the management company is not paying the bills.

Hope this helps.
Scott
Charter Capital

[Aegis Factors]

In the case of the janitorial company, there was just one account debtor? if an account debtor refuses to pay a third party, that can always lead to a theft and litigation. Simply not worth the risk to a factor in such a small account.

Service sector clients are usually excellent but bear in mind:

Look for accounts of at least $20,000 to $25,000 per month in receivables with multiple account debtors. You fishing to low with $5,000 accounts for most factors. There are thousands of similar companies doing 10 times that amount per month that need financing.

Look for the combination of small business enterprise (but not as small as $5,000 per month) doing work for large creditworthy customers. Look for the janitorial services that are cleaning banks, large office buildings, and governemnt complexes.

[cashfactor]

Thanks for the feedback....this is really helpful.
Cashfactor