Commissions, Earnings, and Income Potential

Without question, the feature that draws most entrepreneurial self-starters to the factoring industry is the very unique (and lucrative) method that factors employ to compensate independent brokers for their business referrals.

Percentage of Earned Fees Paid to Brokers

As you learned in Part One of the Crash Course, factors earn “factoring fees” when they finance invoices.  The fees are set by a grid or formula and are typically charged in “windows” which are 10 or 15 day periods of time.  The longer an invoice is outstanding and remains unpaid, the higher the factoring fee.

The referring broker of any client (called the broker of record), earns a percentage of the factoring fees on each and every invoice.  The industry standard is 10% of the factoring fees earned by the factor.    On rare occasions such as during promotions and sales contests, it is not unusual to see additional fees, prizes and awards as incentives.

For Example:

Client A, a guard service, is referred by Bob the Broker to a factor.  The guard service is accepted as a client and the guard service factors $100,000 in invoices each month.  The factor’s fee (discount) rate is 2.75% for 30 days or in other words, during a 30 day period, the factor earns $2,750 in fees on the $100,000 of invoices.  Given the standard broker’s commission rate, the referring broker earns…

• a 10% COMMISSION RATE:  $275.00 per month or $3,300 total annually
• and…the $275.00 is paid each and every month, month after month.
• and…the broker can expect to receive that commission for the life of the account…5 years, 7 years, 10 years or even longer.

Residual Commissions / Life of Account

So as we’ve said, commissions paid by factors to individual referrers are residual.  This means you’ll be paid the appropriate commission percentage of the factoring fees every month as invoices are bought and sold and payments collected from customers.  Additionally, these commissions are paid for the life of the account.  It is common for a client to utilize the services of it’s factor for 3 years, 5 years, 7 years, or even longer. This means the total income you’ll receive from a single small factoring client that you refer can total $20,000, $30,000, $40,000 or even more over time.

How You Will Receive Your Commissions

Once you have referred a client to a factor and it is been successfully funded with its first advance, you will begin receiving monthly commissions via  ACH payment.  Along with the payment, you will receive a “Commission Report” which typically shows you a list of total invoice purchases for the month and the total collections for the month.  Your commission will be based on the collections.  The purchases will give you an idea of what the commission will be like in the following month or months.  Your commissions are are typically received on or before the 15th of the month after the previous month’s invoice collections. 

So whether you are entering the industry as a professional consultant or just an occasional referrer, you now understand what draws more and more creative home based business seeker to commercial finance consulting and in particular, factoring.

Make sure you check out the “Test Tips” above before you move to Part 10 of the Coarse