A factoring business is a type of financial service provider that purchases the accounts receivable of a company and provides the company with immediate cash. Accounts receivable are the amounts owed to a company by its customers for goods or services that have been delivered but not yet paid for.
The factoring company buys these invoices at a discount, usually around 70-90% of their face value, and then takes on the responsibility of collecting payment from the customers.
This allows the company to receive cash quickly and without having to wait for their customers to pay. Factoring businesses can be particularly useful for companies that have cash flow problems or that need to quickly raise funds for expansion or other business needs.
Steps to Write a Factoring Company Business Plan
1. Executive Summary
Sherly Bentley© Factoring Company, Inc. is a factoring company that is based in Brooklyn, New York, and provides financial services to small and medium-sized businesses. We specialize in purchasing accounts receivable from companies and providing them with immediate cash to support their working capital needs.
Our team is made up of experienced financial professionals who are committed to providing our clients with excellent service and support. We work closely with each client to understand their unique needs and tailor our services to meet those needs.
Our factoring services are designed to be flexible and affordable, with competitive rates and fees. We offer fast approval times and quick funding to ensure that our clients have access to the cash they need as soon as possible.
We believe that our company is well-positioned to succeed in the factoring industry. We have a strong track record of providing excellent service to our clients, and we are committed to continuing to innovate and improve our services in order to meet the changing needs of businesses.
2. Company Profile
a. Our Products and Services
Sherly Bentley© Factoring Company, Inc. will be involved in;
- Accounts Receivable Factoring
- Invoice Financing
- Credit Analysis
- Collections
- Accounts Receivable Management (including issuing invoices, tracking payments, and reconciling accounts).
- Purchase Order Financing
- Bad Debt Protection.
b. Nature of the Business
Our factoring company will operate with a business-to-business model.
c. The Industry
Sherly Bentley© Factoring Company, Inc. will operate in the factoring services industry.
d. Mission Statement
Our mission is to help businesses succeed by providing them with the financial resources they need to grow and thrive. We believe that access to cash is essential for businesses to meet their day-to-day expenses, fund expansion plans, and take advantage of new opportunities.
e. Vision Statement
“At Sherly Bentley© Factoring Company, Inc., our vision is to become the premier factoring company for small and medium-sized businesses. We aspire to be the partner of choice for businesses that need flexible and affordable financing solutions to support their growth and success.”
f. Our Tagline (Slogan)
Sherly Bentley© Factoring Company, Inc. – The Factoring Company You Can Trust!
g. Legal Structure of the Business (LLC, C Corp, S Corp, LLP)
Sherly Bentley© Factoring Company, Inc. will be formed as a Limited Liability Company (LLC). The reason why we are forming an LLC is to protect our personal assets by limiting the liability to the resources of the business itself. The LLC will protect our CEO’s personal assets from claims against the business, including lawsuits.
h. Our Organizational Structure
- Chief Operating Officer (Owner)
- Admin and HR Manager
- Marketing and Sales Executive (Business Developer)
- Accountant
- Customer Services Executive/Front Desk Officer
i. Ownership/Shareholder Structure and Board Members
- Sherly Bently (Owner and Chairman/Chief Executive Officer) 52 Percent Shares
- Ken Jacobs (Board Member) 18 Percent Shares
- Andrew White (Board Member) 10 Percent Shares
- Bob Russel (Board Member) 10 Percent Shares
- Caroline Martins (Board Member and Secretary) 10 Percent Shares.
3. SWOT Analysis
a. Strength
- Strong track record of providing excellent service to clients.
- Experienced and knowledgeable team of financial professionals.
- A comprehensive suite of financial services, including factoring, credit analysis, collections, and accounts receivable management.
- Competitive rates and fees.
- Fast approval times and quick funding.
- Ability to tailor services to meet clients’ unique needs.
b. Weakness
- Strong track record of providing excellent service to clients.
- Experienced and knowledgeable team of financial professionals.
- A comprehensive suite of financial services, including factoring, credit analysis, collections, and accounts receivable management.
- Competitive rates and fees.
- Fast approval times and quick funding.
- Ability to tailor services to meet clients’ unique needs.
c. Opportunities
- Expansion into new regions and markets to increase revenue.
- Offering other financial services such as equipment leasing and invoice financing.
- Investing in new technology to improve efficiency and reduce costs.
- Building partnerships with banks and other financial institutions to increase access to funding.
i. How Big is the Industry?
It is difficult to determine the exact size of the factoring industry in the United States, as no central registry or regulatory body tracks industry-wide data.
However, according to a report by the Commercial Finance Association, the factoring industry provided $120 billion in financing to businesses in the United States in 2020. This includes both domestic and international factoring, as well as other types of asset-based lending.
ii. Is the Industry Growing or Declining?
The factoring industry in the United States has been growing steadily in recent years. According to a report by the Commercial Finance Association, the factoring industry provided $120 billion in financing to businesses in the United States in 2020, which is an increase from the $117 billion provided in 2019.
This growth can be attributed to several factors, including increased demand for working capital among small and medium-sized businesses, the growing popularity of alternative financing options, and the relatively low cost of factoring compared to other types of financing.
Additionally, technological advancements have made factoring more accessible and efficient, which has helped to attract new participants to the industry.
However, like many industries, the factoring industry may face challenges in the future due to economic conditions or regulatory changes. Nonetheless, overall, the factoring industry appears to be growing and evolving to meet the needs of businesses.
iii. What are the Future Trends in the Industry?
The factoring industry is expected to continue growing in the future due to increased demand for working capital among small and medium-sized businesses, the popularity of alternative financing options, and advancements in technology.
Some of the future trends in the industry include the use of automation and artificial intelligence to streamline processes, the development of new factoring products and services, and the expansion of factoring into new industries and regions.
However, the industry may also face challenges such as regulatory changes and economic conditions that could impact growth.
iv. Are There Existing Niches in the Industry?
Yes, there are several niches within the factoring industry that cater to specific types of businesses or industries. Some of these niches include:
- Invoice factoring for small businesses
- Freight factoring
- Medical factoring
- Government contract factoring
- International factoring.
v. Can You Sell a Franchise of your Business in the Future?
Sherly Bentley© Factoring Company, Inc. has plans to sell franchises in the nearest future and we will target major cities with thriving factoring services markets in the United States of America.
d. Threats
- Strong track record of providing excellent service to clients.
- Experienced and knowledgeable team of financial professionals.
- A comprehensive suite of financial services, including factoring, credit analysis, collections, and accounts receivable management.
- Competitive rates and fees.
- Fast approval times and quick funding.
- Ability to tailor services to meet clients’ unique needs.
i. Who are the Major Competitors?
- BlueVine
- Triumph Business Capital
- TBS Factoring Service
- Riviera Finance
- Charter Capital
- Paragon Financial Group
- Republic Business Credit
- Prestige Capital
- AltLine by The Southern Bank
- American Receivable Corporation
- DSA Factors
- Interstate Capital
- Fleet One Factoring
- Accutrac Capital
- New Century Financial
- CapitalPlus Construction Services
- Interstate Invoice Factoring
- Eagle Business Credit
- Factor Funding Co.
- Universal Funding Corporation.
ii. Is There a Franchise for Factoring Business?
Factoring is not typically offered as a franchise. Factoring companies are typically independent businesses that operate under their own brand and business model. However, there may be opportunities to become a broker or agent for a factoring company, which would involve referring clients to the factoring company in exchange for a commission.
iii. Are There Policies, Regulations, or Zoning Laws Affecting Factoring Business?
There are currently no federal policies or regulations that specifically govern the factoring industry in the United States. However, factoring companies may be subject to certain state-level regulations, such as those related to lending, debt collection, or consumer protection.
For example, some states require factoring companies to obtain a license or registration in order to operate. In contrast, others impose restrictions on the fees that factoring companies can charge or require them to disclose certain information to clients.
Additionally, factoring companies that collect debts from consumers may be subject to federal regulations, such as the Fair Debt Collection Practices Act.
In terms of zoning laws, factoring companies are typically considered office-based businesses and are subject to the same zoning laws as other businesses in their area. However, some municipalities may have specific regulations or restrictions on the types of businesses that can operate in certain zones or areas.
4. Marketing Plan
a. Who is your Target Audience?
i. Age Range
Our target market comprises adults above 18 years old who own businesses and who have the finance to do business with us.
ii. Level of Educational
We don’t have any restriction on the level of education of those who we are ready to do business with.
iii. Income Level
There is no cap on the income level of those who we are ready to do business with.
iv. Ethnicity
There is no restriction when it comes to the ethnicity of the people we are looking forward to working with.
v. Language
There is no restriction when it comes to the language spoken by the people we are looking forward to working with.
vi. Geographical Location
Anybody from any geographical location will be welcome to do business with our company.
vii. Lifestyle
Sherly Bentley© Factoring Company, Inc. will not restrict any client from doing business with us based on their lifestyle, culture, or race.
b. Advertising and Promotion Strategies
- Search engine optimization (SEO)
- Pay-per-click (PPC) advertising
- Content marketing
- Email marketing
- Referral marketing
- Events and sponsorships.
i. Traditional Marketing Strategies
- Marketing through Direct Mail.
- Print Media Marketing – Newspapers & Magazines.
- Broadcast Marketing -Television & Radio Channels.
- OOH, Marketing – Public Transit like Buses and Trains, Billboards, Street shows, and Cabs.
- Leverage direct sales, direct mail (postcards, brochures, letters, fliers), tradeshows, print advertising (magazines, newspapers, coupon books, billboards), referral (also known as word-of-mouth marketing), radio, and television.
ii. Digital Marketing Strategies
- Social Media Marketing Platforms.
- Influencer Marketing.
- Email Marketing.
- Content Marketing.
- Search Engine Optimization (SEO) Marketing.
- Affiliate Marketing
- Mobile Marketing.
iii. Social Media Marketing Plan
- Start using chatbots.
- Create a personalized experience for our customers.
- Create an efficient content marketing strategy.
- Create a community for our target market and potential target market.
- Gear up our profiles with a diverse content strategy.
- Use brand advocates.
- Create profiles on relevant social media channels.
- Run cross-channel campaigns.
c. Pricing Strategy
The pricing strategy for Sherly Bentley© Factoring Company, Inc. typically involves calculating a fee based on the amount of the invoice and the creditworthiness of the customer. Here is our pricing strategy:
- Determine the factoring fee: This is typically a percentage of the invoice amount, ranging from 1% to 5%.
- Calculate the advance rate: The advance rate can range from 70% to 90% of the invoice amount, depending on the creditworthiness of the customer and other factors.
- Determine any additional fees
- Consider volume discounts
- Communicate the pricing structure clearly
- Monitor and adjust pricing as needed.
5. Sales and Distribution Plan
a. Sales Channels
Our sales channels will include both direct and indirect channels.
- Direct sales: This involves the factoring company’s sales team directly reaching out to potential clients, such as small and medium-sized businesses, through email, phone, or in-person meetings.
- Referral sales: This involves leveraging existing clients, business partners, and other industry contacts to refer potential clients to the factoring company.
- Online sales: This involves using digital channels such as the company’s website, social media, and online advertising to generate leads and attract potential clients.
- Broker or agent channels: This involves working with brokers or agents who act as intermediaries between the factoring company and potential clients, referring clients to the company in exchange for a commission.
- Partner channels: This involves working with strategic partners, such as banks, accounting firms, and other financial services providers, to offer factoring services to their clients.
- Industry-specific sales channels: This involves targeting specific industries that may have a higher demand for factoring services, such as construction, manufacturing, or transportation.
- Trade shows and events: This involves participating in industry trade shows and events to generate leads and build relationships with potential clients.
b. Inventory Strategy
A factoring company will determine the risk associated with providing factoring services to a client and the appropriate pricing and advance rates. However, it is important to note that a factoring company’s primary focus is on the creditworthiness of the client and their ability to repay the factoring advance, rather than the value or liquidity of their inventory.
c. Payment Options for Customers
Here are the payment options that Sherly Bentley© Factoring Company, Inc. will make available to her clients;
- Apple Pay and Google Wallet
- Credit and debit cards
d. Return Policy, Incentives, and Guarantees
As a financial services provider, a factoring company may not offer a traditional return policy, incentives, or guarantees. However, here are some ways we will offer similar policies or incentives to our clients:
- Advance rate guarantees
- Performance incentives
- Collections guarantees
- Non-recourse factoring
- Customer service guarantees.
e. Customer Support Strategy
Providing exceptional customer support is crucial for the success of our factoring company. Here are some customer support strategies that we will adopt:
- Provide multiple communication channels
- Streamline the onboarding process
- Offer personalized attention
- Set clear expectations.
- Provide timely funding.
- Maintain transparency.
- Offer value-added services.
6. Operational Plan
Our operational plan will cover areas such as client onboarding, credit analysis, funding processes, collections, and risk management. Sherly Bentley© Factoring Company, Inc. will focus on providing exceptional customer support, offering value-added services, maintaining transparency, and setting clear expectations.
a. What Happens During a Typical Day at a Factoring Business?
- The business is open for the day’s work
- Provide ongoing customer support to its clients, addressing any questions or concerns
- Conduct a credit analysis to determine the level of risk associated with each client
- Reviewing credit limits, monitoring payment trends, and adjusting funding levels as necessary
- Marketing/website upkeep
- Administrative duties (documentation, paperwork, and follow-up calls)
- The business is closed for the day.
b. Production Process
There is no production process when it comes to factoring business.
c. Service Procedure
Here are the general steps of the service procedure of a factoring business:
Client Onboarding: The first step is to onboard new clients. The factoring business will collect necessary information from the client to determine their creditworthiness.
- Credit Analysis: The factoring business will then conduct a credit analysis to determine the level of risk associated with each client. This process involves reviewing the client’s credit history, payment records, and other relevant financial information.
- Funding: Once a client has been approved, the factoring business will provide funding based on the value of their outstanding accounts receivables. The company will transfer the funds to the client’s bank account, allowing them to access the cash they need to run their business.
- Invoice Submission: The client will submit invoices to the factoring business, which will then verify them and send them to the client’s customers for payment.
- Collections: The factoring business will then follow up with the client’s customers to ensure that payments are made on time. This involves sending reminders and following up with customers who are past due.
- Risk Management: Throughout the process, the factoring business will continually monitor its risk exposure and take steps to mitigate any potential losses. This may involve reviewing credit limits, monitoring payment trends, and adjusting funding levels.
- Customer Support: The factoring business will also provide ongoing customer support to its clients, addressing any questions or concerns they may have about the financing process.
d. The Supply Chain
A supply chain is not applicable to a factoring business.
e. Sources of Income
Sherly Bentley© Factoring Company, Inc. makes money from;
- Factoring Fees
- Interest Income
- Late Fees
- Ancillary Services.
7. Financial Plan
a. Amount Needed to Start your Factoring company?
Sherly Bentley© Factoring Company, Inc. would need an estimate of $75,000 to successfully set up our factoring company in the United States of America. Please note that this amount includes the salaries of all our staff for the first month of operation.
b. What are the Costs Involved?
- Business Registration Fees – $750.
- Legal expenses for obtaining licenses and permits – $1,300.
- Marketing, Branding, and Promotions – $1,000.
- Business Consultant Fee – $2,500.
- Insurance – $5,400.
- Rent/Lease – $25,000.
- Other start-up expenses include commercial satellite TV subscriptions, stationery ($500), and phone and utility deposits ($2,800).
- Operational Cost (salaries of employees, payments of bills et al) – $30,000
- Start-up Inventory – $15,000
- Store Equipment (cash register, security, ventilation, signage) – $4,750
- Furnishing and Equipping – $15,000
- Website: $600
- Opening party: $3,000
- Miscellaneous: $2,000
c. Do You Need to Build a Facility? If YES, How Much will it cost?
Sherly Bentley© Factoring Company, Inc. will not build a new facility for our factoring company; we intend to start with a long-term lease and after 5 years, we will start the process of acquiring our own facility.
d. What are the Ongoing Expenses for Running a Factoring company?
- Utility bills (internet subscriptions, phone bills, signage, and software renewal fees et al)
- Salaries of employees
- Insurance
- Marketing costs
e. What is the Average Salary of your Staff?
- Chief Operating Officer (Owner) – $68,000 Per Year
- Admin and HR Manager – $48,000 Per Year
- Marketing and Sales Executive (Business Developer) – $42,000 Per Year
- Accountant $38,000 Per Year
- Customer Service Officer (Receptionist) – $26,100 Per Year
f. How Do You Get Funding to Start a Factoring Company
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Sell shares to interested investors
- Applying for a loan from your bank/banks
- Pitching your business idea and applying for business grants and seed funding from the government, donor organizations, and angel investors
- Source for soft loans from your family members and friends.
8. Financial Projection
a. How Much Should You Charge for your Service?
Sherly Bentley© Factoring Company, Inc. will charge based on what is obtainable in the United States. Factoring companies in the US typically charge fees that range from 1% to 5% of the invoice amount.
The exact fee charged by a factoring company can vary based on factors such as the creditworthiness of the customer, the volume of invoices being factored in, and the length of time it takes for the customer to pay. Some factoring companies may also charge additional fees for services such as credit checks and collection efforts.
b. Sales Forecast?
- First Fiscal Year (FY1): $250,000
- Second Fiscal Year (FY2): $290,000
- Third Fiscal Year (FY3): $420,000
c. Estimated Profit You Will Make a Year?
- First Fiscal Year (FY1) (Profit After Tax): $70,000
- Second Fiscal Year (FY2) (Profit After Tax): $150,000
- Third Fiscal Year (FY3) (Profit After Tax): $250,000
d. Profit Margin of a Factoring Company
The ideal profit margin we hope to make at Sherly Bentley© Factoring Company, Inc. will be between 16 and 20 percent on each job carried out irrespective of the distance covered.
9. Growth Plan
a. How do you intend to grow and expand? By opening more retail outlets/offices or selling a franchise?
Sherly Bentley© Factoring Company, Inc. will grow our factoring company by opening other offices in key cities in the United States of America within the first five years of establishing the business.
b. Where do you intend to expand to and why?
Sherly Bentley© Factoring Company, Inc. plans to expand to;
- Portland, Maine
- Orange Beach, Alabama
- Ocracoke, North Carolina
- Block Island, Rhode Island
- Los Angeles, California
- Long Beach, Washington
- Newport, Rhode Island
- Chicago, Illinois
- Clearwater, Florida
- Carmel-by-the-Sea, California.
The reason we intend to expand to these geographic locations is the fact that available statistics show that the cities listed above have the most thriving factoring markets in the United States.
10. Exit Plan
The founder of Sherly Bentley© Factoring Company, Inc. plans to exit the business via merger and acquisition. We intend to merge with an international factoring company that has a world spread so that the management of the company can be placed under a trusted hand when the founder retires.
The goal of combining two or more international factoring companies is to try and achieve synergy – where the whole (the new company) is greater than the sum of its parts (the former two separate entities) and with a well-structured management team and board of trustees.