At some point in time, many successful industry brokers begin to look at the opportunities to be found in “Micro-Factoring”. After all, if 10%-15% of the factoring fees earned is good as a broker commission, wouldn’t keeping 100% of the fees be better? Maybe so. And with annualized investment yields often approaching 100%, there are few business opportunities that can compete with this completely off-the-radar enterprise. Be advised, however, it is not, one to be taken lightly.
What Is Micro-Factoring?
Like there larger factoring brethren, micro-factors finance small business owners who operate on a B2B basis by purchasing quality verifiable invoices as they are created. This allows a small business owner to grant 30-60 day terms of payment to customers yet not have to wait 30-60 days for the money himself. Factoring is a powerful financial tool utilized worldwide as a small business finance tool.
What makes micro-factors slightly different, is that they typically work on strictly a community level and tend to finance invoiced sales for very small entrepreneurs in their earliest stages of operation. While a regular factor expects a minimum of $25,000 per month to open an account, micro-factors will finance invoices for start ups for as little as $1,000 per week and sometimes even less, supplying financing to enterprise owners on truly a “micro” basis. Micro-factors are a welcome addition to any business community and tend to work closely with local business incubators and SBDCs as will as service organizations such as SCORE.
What’s Required to Become a Micro-Factor?
Most micro-factors start out as factoring brokers and then, at some point, make the important transition in micro-factoring as they start to actually buy invoices of very small clients rather than referring them out. So first, to really become a micro-factor, you must first learn how to bring in the business as a broker and learn the business development side of the industry. You will also need capital since you will be purchasing invoices on probably a weekly basis from your clients. Many micro-factors start with as little as $25,000 but find they will soon out grow that amount.
Second, you will need some software to track invoices and fees. Fortunately, “light versions” of standard factoring software are available from several providers such as Win Factor and Factor Fox.
Lastly, you will need a bit of legal training specifically designed for factors. You will need contracts and need to learn how to file UCC lien perfections. This you can learn by attending an exceptional and absolutely essential course on factoring entitled The Law and Business of Factoring, which is periodically offered through the IFA (International Factoring Association).
High Yield Investment Opportunity for a Select Few
While factoring fees for standard factoring transactions are little more than a credit card transaction, micro-factoring fees are a bit higher. And though the client may only be paying 3%-4% a month for services, the micro-factor’s actual yield on it’s investment will often approach 100%. This makes micro-factoring a very attractive opportunity for investment-oriented “numbers” people who not only enjoy sales, but also enjoy assisting small business operators fulfill their dreams. The place to begin this enterprise, however, is on the broker level. It will do you little good to open a micro-factoring business if you do not have the capability to bring in new clients.
One of the best places to start if you believe a micro-factoring business is a good fit for you is with the IACFB (International Association of Commercial Finance Brokers). The IACFB’s Factoring 101 Training Program will put you on the right path to success in the industry, whether you simply intend to broker transactions or harbor greater goals by entering the actual finance side. If you still believe this is the opportunity for you, join the IFA (International Factoring Association) and begin attending the essential lectures and courses required to enter the industry the “right way”.
Want to Comment on This Article About Micro-Factoring?
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