Here are the words of Jeff Callender who inspired me to start a factoring service when I read his book... 

Factoring Fundamentals - How You Can Make Large Returns as a Small Factor  

"Buying and selling accounts receivable is called factoring.  By selling business-to-business and business-to-government invoices to factors, companies can obtain cash quickly to run their operations and grow without a bank loan.  Cash flow problems keep many businesses from growing like they want to and could if they only had adequate cash on hand.  Selling receivables at a discount is how to get this cash quickly - and get it without creating debt, which a bank loan does.  Just waiting to hear if a bank loan has been approved (which most aren't) can take months.

Simple: Waiting 30 or 45 days to receive payment can put a real squeeze on a company's cash flow.  If they make a product or have to meet payroll, waiting that long can mean a cash shortfall when materials are needed for new orders, or when payday rolls around every week or two.  How can they meet these critical expenses if they haven't been paid what they're owed and don't have enough cash reserves to cover these critical expenses?  Answer: They can sell a valuable asset - their receivables."  

"The difference between where you are today and where you'll be in five years from now will be found in the quality of books you read." - Jim Rohn

I first learned about factoring in the mid 1970s when I was hired to recruit independent contractors for a company that provided a detailing service to automobile dealers.  The company's owner wanted to expand nationwide.  Hey!  There was NO Internet then.  I ordered phone books for major metropolitan centers from accross the nation and had them stacked on shelves in the office overflowing onto the floor and one open on my desk next to my telephone, the landline I used to make cold calls every day!  It was a successful venture.  The owner was brilliant!  He financed the nationwide expansion by selling his company's invoices (receivables) to a factor.  

It wasn't until way way later, actually in the next century, after reading Jeff Callendar's books on Factoring that teach how to do it - that I decided to add factoring receivables to my personal business mix.  I found it to be easier to run than my trucking business.  As a Factor, when you purchase receivables... Your inventory becomes the invoices (receivables) you buy at a discount.  Once you understand inventory turnover ratios it becomes easier to grasp how to multiply the annual return on nearly any product you sell.

The Lure of becoming a small factor...  

It was 1970 that I first came to fully appreciate the impact of a good 'turnover ratio.'  That was when my next door neighbor in Red Wing Minnesota , who owned a small chain of furniture stores, explained to me how a good 'turnover ratio' can turn a small profit margin into a relatively large annual return on investment.  He also mentioned that he would quickly sell the paper notes (from customers who bought on credit) at a discount because he'd make more money faster by putting the cash back into inventory right away.  That second part didn't sink into my brain at the time but I later began following his advice by applying the 'turnover ratio' logic to things I could buy and then sell.  

It was in the mid 1970's while employed as a recruiter in a business serving the automobile industry that I learned - if you need a cash infusion, you can sell your receivables to a factor.  It was then that I understood more clearly why my neighbor (the furniture guy) sold his receivables.  However, it wasn't until I established my own trucking firm (decades later - in the next century) that I actually used a factor myself and eventually became one.  

So, it wasn't until  nearly 40 years later, after discovering and subsequently studying Jeff's books, that I considered purchasing receivables myself.  You too can learn how to routinely turn a simple 5% discount into a consistent annualized 30% to 60% net return on investment,  (Turn-over ratio X Discount rate.)  In the book I read his advice to NOT pursue clients in the transportation industry - especially the trucking business unless you already have expertise in that business.  BTW: that was and still is good advice!

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Tax Planning Tip - How to accelerate growth:  There is a way to structure your 'factoring business' so that you legally defer taxes while compounding your earnings.  Profits in this business are generally categorized as 'short term capital gains' and taxed as ordinary income.  However, by using one legal structure that few people ever think of - you can legally defer taxes and thereby compound your earnings faster so that you quickly grow a small personal fortune.  If you're going to grow a factoring business you'll need to keep some of the profits in the business by adding to the amount of working capital you have to invest and thereby compound your earnings and return on investment.  You can accomplish your goal even faster if you can defer income taxes on the profits you leave in the business.  So, what is the legal structure you can use?  Convert your individual retirement plan into a 'Self Directed IRA' and arrange for it to own the business.  You can have your IRA either buy a business that's already running or start a new one from scratch!  

This lucrative 'Cashflow Business' (Factoring) is well suited to be owned by and operated within your IRA but there are caveates - pros and cons you need to be aware of.  A 'Self Directed IRA' is in essence a ' Legal Trust' that you manage yourself.  Seek the advice of a 'Fee Only' Certified Financial Planner regarding your personal objectives and specific situation and a 'Tax Attorney' to assure that it's set up correctly.  

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Solving Your Client's Cashflow Problems

Here's two ratios you should understand in order to make an informed judgement of a company's ability to pay its debts.  

Click the images below to learn more about these ratios and others that should be important to your prospective future clients.

When these two concepts above have become fundamental knowledge of yours - then maybe your becoming a small business factor will be a good fit.

Caution:  If you're familiar with financial accounting, and collections and naturally cautious - well, maybe becoming a 'One-Person Factor' for small businesses is a good idea - if you are fully aware of the risks and how best to manage them in today's environment.  Jeff Callender entered this business in 1994 and first published this book in 2008 and updated it in 2012 so for your benefit, in it he shares valuable knowledge tempered by his personal experience in this practice.   

I consider this book a must read for anyone interested in the cash flow industry.

Here's another idea for you.  

If and when you have the opportunity to invest in a private company to own even a minority share - negotiate to make your factoring firm - that company's 'Factor of Record' and 'Factoring Agent/Broker of Record.'  Works kind of like an  'Attorney of Record' or an 'Agent of Record' as in the insurance industry.  When and if the company needs cash in the future - you'll be very glad that you're the Factor of Record! 😁

I have stories to tell that reveal lessons I've learned over the decades, stories that I can share with you individually.  Perhaps they'll help you save money and time.

If you want me to notify you when I publish something of value, then please let me know what piqued your interest. 

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