Tips
A Q&A With Viceland’s Host Of ‘Hustle’ John Henry
March 5, 2020
Entrepreneur and investor John Henry, who also hosted TV show ‘Hustle‘ on Viceland, recently spoke with deBanked Chief Editor Sean Murray about his experience as a young successful entrepreneur (Q&A is below). Henry will be a special guest speaker at Broker Fair 2020 on May 18th in New York City. YOU WON’T WANT TO MISS IT!!!
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About John Henry
Voted to Forbes’ 30 Under 30 and Ebony’s Power 100 lists – John Henry is a Dominican-American entrepreneur and investor. Henry started his first business at 18, an on-demand dry cleaning service for the Film and TV industry in New York City, with clients such as The Wolf of Wall Street, Boardwalk Empire, Power, and more. Henry led the company through its acquisition in 2014 — founding and selling his first business by the age of 21. On the heels of his first win, Henry launched Cofound Harlem — a non-profit incubator that aims to foster a robust tech ecosystem North of 96th street in New York City. Cofound Harlem has launched numerous high-growth companies in Harlem, gaining recognition from Fast Company, TechCrunch, Business Insider, and more. He is a former Partner at Harlem Capital, a diversity-focused early stage venture capital firm on a mission to change the face of entrepreneurship. Henry is also the host of VICELAND’s latest show, HUSTLE, which is Executive Produced by Alicia Keys and focused on helping scrappy entrepreneurs grow their business to the next level.
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Q (Sean Murray): You started your first business at 18 but what made you want to start one?
A (John Henry): It was driven by necessity more than a desire to be an entrepreneur, but I did exhibit some of the traits that pushed me towards that path. Entrepreneurs tend to have a history of non-conformity where there’s no pre-chartered path and in an environment that demands conformity, anyone that likes to express their own views comes up against a lot of friction. So, for me it was necessity but also part of my character to do things differently.
Q: What kind of lessons did you learn from running a business at such a young age?
A: It’s a serious game and it’s full of responsibility. I was telling myself at one point that I was just 18 and so the struggles I faced running a business could be overlooked because of my age, but the world doesn’t care how old you are. If you’re running a business, there’s no way around the responsibilities it demands.
The other thing is, when you come up against really tough situations, you need to be brave and have courage to go through those moments. I’m glad I had the courage in them. Once you take them head-on, you come out feeling better on the other side.
Q: As a former partner of a Venture Capital firm, what’s the #1 mistake you saw entrepreneurs and business owners make?
A: You’ve got to have macro understanding and micro-chops. Everything is connected, it’s not just knowing your business but knowing where you’re situated in the economic or market cycle and understanding what customer sentiment is. That’s what a lot of entrepreneurs miss. Like if your idea is to make a mobile app, that’s great, but how many apps are already out there? How long have apps been part of the market already? What’s going to make your app stand out from every other app? And this doesn’t apply just to startups, but also existing companies. Every 3 months, you should be asking yourself the business question and evolve if necessary. The hardest part though is when your gut is telling you you’re right but every other person out there is telling you you’re wrong. And that’s something you’ll really have to figure out.
Q: Why has helping minority entrepreneurs and businesses been so important to you?
A: I’m not usually asked why, but I was seeing less and less minority representation among entrepreneurs that were receiving capital. There are some systemic factors that make it harder to get ahead but at the same time people can become inclusive to the point where they’re becoming exclusive. So, I think it’s about helping those that are on their way to overcoming tremendous odds to get far.
Q: Real estate, what can you tell me about your foray into that market?
A: I can say it’s the best business that I have been in so far. Real estate is the #1 fundamental building block of wealth. When I first got into it, I was shocked that you could put down 20% and the bank would put in the other 80%. This is a game of physical assets and I’m glad I came across it when I did. I’m currently building a bedrock of business around real estate, my preference being residential multi-family apartments.
How to Respond to Negative Press
January 3, 2019
Wondering what to do about negative press? deBanked spoke to some Public Relations professionals about helpful techniques to manage the situation.
“When it comes to a negative story, we advise our clients to bridge back to something they are comfortable talking about,” said Bill McCue, Executive Consultant at Indicate Media.
Bill McCue, Indicate mediaMcCue said this is known as “bridging.”
“If you’re asked a question about something you don’t want to talk about for whatever reason, you can use transitional phrases like ‘You know that’s an interesting point, but what the real story here is…’ or ‘What we believe is truly the most important thing to talk about is…’ And just keep bridging from a topic you’re not comfortable addressing to a topic you are comfortable addressing.”
McCue noted that politicians and professional athletes are excellent at this. His favorite example is hockey players, who never talk about themselves. When they get a question about their own performance, they always “bridge” to something like the strength of another player or the coach or the entire team.
McCue also advises all clients, whether they’re overcoming negative press or not, to speak in simple terms, and avoid jargon or acronyms.
“Never assume that the reporter is an expert on your industry,” McCue said. “He or she might be writing about [multiple] topics throughout a given business day. Or they may have been writing about real estate last week and now they’re writing about small business lending…So never assume a certain level of expertise.”
Jason Geller, JMediaHouseIf your industry has gotten negative press, but your company in particular has not been targeted, Jason Geller, Founder of New York-based public relations firm JMediaHouse, said that no response is often the best response.
“Unless you have established clear goals and a message you must put out, or if the allegation is serious, the best response in most cases is nothing. Ignore it,” Geller said. “Don’t give the story life. By opting out you’ve robbed it of the oxygen it needs to continue on.”
Geller also said that if the reporting contained inaccurate information, then the company must first provide the correct information to the reporter or blogger. This, he said, “opens up a great opportunity to leverage the situation and strengthen your relationship with the journalist, and to allow him or her to get to know your company and clients better.”
If a given negative story is so bad that it truly warrants a response, Geller said that it’s critical first to research the writer or blogger before responding.
“What have they written about in the past? Do they have a history of putting out negative commentary? Have they had a bad experience with your product or brand? Once you have the answers to these questions, you’ll be able put together a much more concise and educated response,” Geller said.
What’s a Broker To Do? Industry Execs Offer Their Insight
March 12, 2018
Below are excerpts from separate interviews with four industry executives when asked for tips or advice for brokers:
“I would just say to be in it for the long haul. Play the long game. Be the kind of quality partner that you would want in return. There are some brokers and referral sources in this space who see merchants only as a commission check, not as the going concern and business entities that they are. Some brokers are playing the short game, which is unfortunate, because brokers can be in a very powerful position with their clients (merchants) – they need to use that power wisely. If one were to carefully look at a business and its working capital challenges, and then tried to do what was in the best interest of that business in the long run, a broker could be creating a revenue stream for a longer period of time – on a healthier business – and in return creating a more sustainable brokerage platform for themselves. Be open and transparent – sometimes losing a deal due to full transparency can lead to many multiples of that volume with a loyal funding partner.”
– Bill Gallagher, President and Managing Partner, CFG Merchant Solutions | Read full interview
“Choose industries that you excel in—and own them.
Concentrate your marketing efforts on your core customers and target those that meet a lender’s criteria. It’s not the quantity of leads you deliver, it’s the quality—and that will save you time and money. Look for customers in growth stages, not those that are desperate for funds to stay afloat. This will also result in more renewals.
And find a lending partner with a strong brand, as this opens doors to new customers.”
– Michael Marrache, CEO, BFS Capital | Read full interview
“It is not an easy business and not for everyone. It takes quite some time – years – to either build an organization or to become a seasoned pro that truly understands the space. It is also very fast paced and ever changing, so you have to really commit and take the space seriously if you want to be successful.”
– James Webster, CEO, National Business Capital | Read full interview
“Brokering is a tough marketplace right now. I don’t want to say [it’s] saturated, but it’s getting pretty close…Everyone’s getting a million phone calls and mailings and the marketing is going crazy, and the expense is going up. So you really have to find a way to differentiate yourself.
That’s really the biggest thing about being a broker, besides quality service. It’s more: What kind of niche can I get into? How can I break into the market without having to spend like a million dollars a month on marketing? The biggest thing is: What can you do differently?”
– Evan Marmott, CEO, CanaCap | Read full interview
Google Penguin 2.1 Takes Swing at Merchant Cash Advance Industry
October 5, 2013
If you noticed a shuffle in search rankings for industry keywords last night, it’s because Google unleashed Penguin 2.1.
Penguin 2.1 launching today. Affects ~1% of searches to a noticeable degree. More info on Penguin: http://t.co/4YSh4sfZQj
— Matt Cutts (@mattcutts) October 4, 2013
Penguin focuses on spammy or purchased backlinks so if you did one or the other, you probably got harmed. Given the high cost of traditional marketing and Pay-Per-Click Internet Marketing, many funders, ISOs, and lead generators have turned to SEO to boost their visibility in organic search. Whether undertaken by inside employees or outside contractors to do the job, there is no doubt that building links has been part of the strategy. Some have had major success in rising up through Google’s search results but most haven’t. It’s not easy getting to page 1, but if you get there, don’t celebrate. You won’t be there forever.
Less than two weeks ago on DailyFunder, someone took to the board to pat themselves on the back for ranking #2 for the keyword: merchant cash advance. Wikipedia is #1. They admitted it took a lot of hard work over the course of 8 months. Last night they were thrust back to position #65. That’s on page 7 where they will never be found. 8 months of work for 2 weeks of ranking. You might be saying, “Well my SEO guy will just roll with the punches and get us right back.” Unfortunately with Penguin, it doesn’t work that way. Penguin is basically a permanent penalty, an algorithmic barricade to prevent you from ever ranking for your keywords again. According to a poll on Search Engine Roundtable, only 7% of respondents claimed to have made a full recovery after Penguin 2.0. Most SEOs would advise that you torch your domain, buy a new one and start a whole new website. That’s not exactly an easy thing for a big brand or company to do.
There’s a flaw in all the SEO being done in the merchant cash advance industry anyway and that’s the notion of being on page 1 to begin with. If you read David Amerland’s Google Semantic Search, he explains that “there is no longer a first page of Google”. The results you see on the first page of Google depend completely on whether or not you’re using a desktop or mobile device, what zip code you’re accessing the internet from, what you’ve searched for in the past, and whether you’re logged into your gmail account. And if you use Google+, then forget it! The first page results for someone that uses Google+ are ultra personalized. To rank on their first page, they’ll pretty much need to follow you socially first.
So if you’re thinking about ranking higher in search as a means to generate more leads, you sure as heck better understand how the results work these days. What you see on your screen is not what I see on mine. A site that’s #65 for me, may be #4 for you.
The other angle of Google’s foray into Semantic Search is their desire to be an answer engine, not a search engine. Google wants to answer questions for searchers without them having to click a link. Here’s an example of Merchant Processing Resource acting in that role:
What is voice authorization you ask? Boom! Answered! No need to click anything. That’s where search is going. What this means for companies that are trying to get customers is that they either need to become the absolute authority within their industry or they need to throw in the towel and do Pay-Per-Click.
When I search for merchant cash advance from my desktop in NYC, 7 out of the top 10 results are not company pages, which is astounding considering how much effort companies are putting in to rank high for this keyword. I see:
- 1 Wikipedia
- 4 News articles
- 1 Press release
- 1 Youtube video
Did you get hit by Penguin 2.1? Are you optimized for Semantic Search?
Previous merchant cash advance SEO articles:
- Your Merchant Cash Advance Press Release May be Hurting You 8/8/13
- Is Google Your Only Web Strategy? 12/31/12
- The Other 93% 7/13/12
- Google Penguin Kills Survivors 5/6/12
- The SEO War Continues 4/4/12
- The SEO War for Merchant Cash Advance 2/12/12
Split Funding is Here to Stay
August 21, 2013
I’ll say it for the hundredth¹ time, the advantage of split-funding is the ability to collect payments back from a small business that has traditionally had average, weak, or poor cash flow. Let’s put that into perspective. There is a distinct difference between a working business with poor cash flow and a failing business. A failing business is typically not a candidate for merchant cash advance or similar loan alternatives.
Poor cash flow could be the result of paying cash up front for inventory that will take a while to turn over. A hardware store with a healthy 50% profit margin may be able to turn $10,000 worth of inventory into $15,000 in revenue over the course of the next 90 days. The only problem is that the full $10,000 must be paid in full to the supplier on delivery.
Enter the merchant cash advance provider of old that discovers the hardware store has had a fair share of bounced checks in the past, mainly because of the timing of payments going in and out. Cash on hand is tight, the credit score is average, but the profit margin is there. Most lenders would take a pass on financing a transaction that carries legitimate risk such as this one does, that is until the ability to split-fund a payment stream became possible.
Advocates of the ACH method tout that it’s just so much easier to set up a daily debit and scratch their heads and wonder, “man, why didn’t we think of just doing ACH in the first place?”
The thing is, people did think of it and they concluded that for a large share of the merchants out there that needed capital, it didn’t make financial sense to try and debit out payments every day with the hope that there would always be cash available to cover them. Banks have had a hard enough time collecting just one payment a month, so what makes 22 payments in a month so much more likely to work?
I’m not inferring that there is something wrong with the daily ACH system that has taken the alternative business lending industry by storm. There’s plenty of situations for which that may be the best solution, especially for businesses that take little or no credit card payments. My point is that the split-funding method isn’t going to shrivel up and die. It’s here to stay. So long as businesses have electronic payment streams, they will be able to leverage them to obtain working capital.
When it comes to splitting card payments however, it’s important for a business to have faith in the payment processor. Reputation, compatibility with payment technology, and the assurance that the business will be able to conduct sales just as it always has are important. If you’re a funder, ISO, or account rep, it’s your responsibility to make sure that those three factors are addressed. A lot of processors are willing to split payments but they haven’t all made a name for themselves in the industry. Integrity Payment Systems (IPS) comes to mind as one that almost everyone works with and I’ve been in touch with Matt Pohl, the Director of Merchant Acquisition of IPS for some time. He’s been nice enough to share a little bit about what makes a split partner special, and what has made them particularly stand out in the merchant cash advance industry.
Clearly, the role of the credit card processor has diminished over the last couple years when it comes to merchant funding. ACH/Lockbox models have become more prevalent which created a sales mindset that switching a merchant account was more of a hindrance than a necessity. Some argue the decline in profit margin on residuals, due to price compression, made it no longer worth the time and effort to make an aggressive pitch to switch the merchants processing. ISOs also argue that too often merchants have reservations to switch processors because of previous bad experiences, cancellation fees, or because they simply know its not necessary in order to be funded. This is where it’s important to have the RIGHT split partner, not just any split partner
What makes Integrity Payment Systems a “special” split partner is the fact we control the settlement of the merchants funds, in house. IPS is partnered with First Savings Bank (FSB), which allows us a unique way of moving money. Because of our state-of-the-art settlement system and direct access to FSB’s Federal Reserve window, we eliminate the necessity of having layers of financial institutions behind the scenes that merchants funds typically filter through. This is a HUGE benefit to cash advance companies for several reasons. First, we implement the fixed split % when we receive the request, in real time. This allows the deal to be funded quicker. Secondly, since we handle the settlement process we have access to the raw authorization data which allows us to provide comprehensive reporting on a daily basis from the previous days activity. But also we can do true next day deposits, including Friday, Saturday, and Sunday funds available for the merchant on Monday morning. This is especially valuable when selling to restaurants/bars, or any other industry with a lot of weekend volume. Lastly, IPS makes outbound calls to merchants, on behalf of the sales agent and cash company, to download and train the merchant on their terminal. A confirmation email is sent to the agent which includes any batch activity so the deal can fund.
As an added example of this, on the last week of every month, the merchant boarding and sales support team fully understands that our MCA partners have monthly funding goals they need to reach. The IPS team goes above and beyond to ensure merchants get setup properly in time so those accounts can be funded before the month is over. We have a motto at IPS that the sales force are our #1 customers, and nowhere is that more apparent than by the way we take over all the heavy lifting once the agent gets the signatures on our contract. We firmly believe that by helping the agent by taking over the boarding process, that this will allow them to do what they do best, sell more deals!! A lot of competitors expect the agent to be involved in the boarding process, and that’s valuable time that takes them away from selling.
IPS has opened their doors to every MCA company that wishes to have an exceptional split funding partner/processor. We have all the necessary tools to provide this service the right way, and we want the opportunity to earn the business of every working capital provider out there. You don’t have to listen to a sales pitch from me, because I strongly believe that our reputation in the cash advance space speaks for itself. We would love the opportunity to talk to any MCA provider about a few additional services we offer utilizing our settlement system that will allow ISOs to fund more deals.
– Matt Pohl
(847) 720-1129
Integrity Payment Systems
One thing I can personally attest to about Integrity is their human factor. You can actually meet some of their team and see inside their office in the fun youtube video below:
Getting deals done
Ultimately, the financing business is about getting deals done and there are countless small businesses that just won’t ever be a candidate for ACH repayment. Heck, for many years the merchant cash advance industry wasn’t even a financing industry of its own, but rather it was one of many acquisition tools for merchant account reps. (See: Before it Was Mainstream). Technically it still is. You don’t want to sign up a merchant for processing and then have to move the account because the processor doesn’t split or because there is no dedicated customer service. I’ve been in that situation before personally and it’s a nightmare.
There’s a reason this website which is dedicated mainly to merchant cash advance is called the Merchant Processing Resource. You can’t know everything about cash advance without knowing about merchant processing. Get acquainted!
If you’d like to read the lighter side of Merchant Cash Advance History, you just might want to check out MCA History in Honor of Thanksgiving. 😉
¹ I said it for the 99th time on the Electronic Transactions Association’s Blog in Preserving the Marriage Between Merchant Cash Advance and Payment Processing
When Merchant Cash Advance isn’t the Right Fit
August 12, 2013
“I know you do a million in gross sales monthly but since you process only $5,000 in credit cards, we can only approve you for $7,000.”
Before ACH repayment became mainstream, the MCA industry was incredibly restrained in its ability to help businesses. A merchant seeking a half million dollars with the cash flow and size to back that request up was being told that the absolute best they could get would be maybe $10,000, and that’s with a 100% holdback in place instead of the industry standard max of 30-35%. It was an awkward sale for both parties.
To pitch a business owner generating $12 million a year in sales a paltry $10,000 is like telling your boss that the only thing you did at work this month is forward a single e-mail. To the business owner, they’re probably left wondering if lending really has dried up that much or perhaps they’re wondering if they’re just talking to the wrong people. Some of these mismatched situations actually turn into closed deals. I can personally remember one where a semi-serious request for $2 million became a $6,000 signed contract. I think they waited only 24 hours before applying for a renewal. The majority of these sales calls go nowhere though because what’s being offered is not a fit for what is needed.
It’s okay to have mismatches in life. As a salesman, your product is not the right solution for EVERY problem, no matter what your rebuttal script says. If a man is wheeled into an emergency room with 7 deep stab wounds, Johnson & Johnson is going to have to pass up the opportunity to offer him Band-Aids as the answer. A million Band-Aids might work, but they’re not the right solution.
In 2013, I am hearing a wider call to diversify product offerings to stay competitive. Yes, offering a fixed daily repayment loan based off of gross sales is a nice way to compliment the purchase of future credit card sales, but that’s not really diversity anymore, that’s a necessity to stay alive. By really diversifying, I’m talking about financial products beyond daily repayment loans and advances. Almost everyone agrees that being able to service more deals is a good thing but when it comes right down to it, they may see it as a distraction from their main focus.
We’ve all seen a friend or two bite off more than they can chew by trying to broker an SBA loan or commercial real estate deal. There’s no shortage of financial companies sitting on the periphery of the MCA industry waving a flag that says “if a deal isn’t compatible for you, then send it our way.” They don’t really speak the MCA language though and they expect you to do a lot of the closing and negotiating on your own. Some of these deals take months to process and if the lender believes the deal is only a one-time thing, they might not even pay you for it. Ugh! Looking at it from this perspective, perhaps it’s better to just stick with MCA and let every other type of deal fall by the wayside, that is until you look at your marketing expenses again and wonder…
An inbound lead is one that you’ve already paid for, so if they’re not a candidate for a daily repayment loan or advance, then what is the most efficient way to monetize and service them? Who can you really depend on to make servicing it a reality and how long will it take? How easy will it be? I searched beyond the industry for answers but began to find them inward. It seems New York City based Strategic Funding Source has recognized the need for product diversification and is eager to assist account reps in servicing more clients and closing more deals. Your marketing dollars are already spent, so now it’s time to monetize what they’re bringing in. There is a universe beyond daily repayment deals and if you hope to stay ahead of the curve, I recommend you become intimately familiar with programs like invoice factoring and accounts receivable factoring. You can and should be doing deals of this nature every month, not once in a blue moon.
While I like to consider myself knowledgeable on a wide range of financial topics, Lenny Leff, who heads Strategic Plus, a new division of Strategic Funding Source, has offered to write his own regular column on Merchant Processing Resource.
I spoke to David Sederholt, Strategic Funding Source’s COO, about this first in regards to Lenny’s role at the company:
“Through this new division of Strategic Funding Source, led by Lenny, we can say ‘yes’ to more businesses seeking capital to grow and are not limited to cash advance and loan products. We take a human approach to financing and know that the needs of small business owners are as diverse as the businesses themselves. With more product offerings, we are able to continue to be true partners to the small businesses we finance.”
– David Sederholt, Strategic Funding Source COO
Lenny’s posts will provide guidance and information about opportunities outside of MCA. After a few in-person meetings, I think he is uniquely positioned to discuss this topic, especially considering his prior experience in the MCA industry. I asked if Lenny would introduce himself in this post and he added the following:
“I am happy to be joining Strategic and look forward to sharing my 15+ years experience in factoring and asset based lending. The blog will give business owners and ISOs the opportunity to learn more about the different solutions and alternatives available when they go to someone offering a one-stop shop; Purchase Order Financing, Invoice Factoring, Equipment Leasing, Healthcare Lending to Business Loans and MCA. Our goal is to expand the knowledge within our community and help our partners find customized financing for their clients. We are thrilled and excited to share our insights with Sean and the Merchant Processing Resource site.”
– Lenny Leff, Strategic Plus
When the deal doesn’t fit, will you try to sell it anyway? Will you throw it out? Or will you try to monetize the lead you’ve already paid for? I don’t like the first two options… and I’m sure many of you don’t either.
Learn more about Strategic Plus at http://www.sfscapital.com/news/view/3596
Contributors
David Sederholt
Lenny Leff
Discuss factoring on DailyFunder
http://dailyfunder.com/showthread.php/353-PO-Financing-Factoring/page2
Factoring Construction Deals: It’s not impossible
April 18, 2013
Being my first post in the Small Business Corner, allow me to introduce myself. My name is Steve Ontiveros and I’m the founder of The Factoring Place. I’m good at finding the right factoring company for my clients based on their unique situations. Factoring and MCA really aren’t that different. Each company seeking a merchant cash advance is unique, like each factoring client is unique. Not all merchant cash advance companies are alike, and similarly not all factoring companies offer the same program & factoring rate. I became a factoring broker because I wanted to make sure my clients were getting the very best factoring deal for their unique situation.
Many factors lack the c-c-c-courage needed to fund a construction deal. Preliminary & Mechanic’s Liens, Payment & Performance Bonds, Progress Billing, and Retention, OH MY! Follow me along the “Yellow Brick Road” to mitigate the common risks of factoring construction deals.y factoring and merchant cash advance brokers turn down or walk away from construction companies seeking working capital. Factoring construction companies is a niche within a niche. As a broker, understanding the inherent risks of construction factoring can help you find the right factoring firm that will successfully fund your client. Understanding how each factoring company operates is also important to knowing whether or not your client will get funded.
Actually, you don’t have to live in the fantasy world of “Oz” to successfully navigate the unique risks found in a typical construction deal. When you peel back the curtain inside the “Emerald City Factoring Company,” you’ll find that there are no wizards or wizardry going on at all. But for this article, I’ll be your Emerald City Factoring Company Wizard. I’ll help you understand construction factoring giving you the confidence to walk the walk and get your construction client funded.
Construction Factoring 101: Preliminary Lien Notice & Mechanic’s Liens
A Preliminary Lien Notice is a formal document sent by the contractor, sub contractor, material supplier, equipment lessor – and factoring company in some cases– to the owner of the project. This “pre-lien” establishes the right to file a mechanic’s lien later on down the road. If the pre-lien is sent and the claimant’s bill is paid, the pre-lien has no further legal effect. However, if the bill is not paid then the claimant may now file a mechanic’s lien on the owner’s property. An active mechanic’s lien on a property ties that property up, leaving it in a position such that it cannot be sold or transferred to another party until the mechanic’s lien is released. Roughly 40 states in the US require a preliminary lien to be present before a mechanic’s lien can be enforced–check the laws in your state to see where you stand.
The Emerald City Factoring Company often requires its construction clients to provide evidence of a pre-lien being sent to everyone up the food chain, including the owners. In fact, Emerald City Factoring Company has been known to file a pre-lien of its own to further protect its position. True, Emerald City Factoring Company is not a contractor, supplier, or equipment lessor. But, because Emerald City Factoring Company has a blanket UCC1 on all assets of the client, the factor is indeed a supplier of material and equipment on the job. Even if the General Contractor argues a factoring company has no legal standing to file a pre-lien, the owner doesn’t care. The owner will simply tell the General Contractor to ensure all invoices are paid to all subcontractors so that the factoring company’s pre-lien won’t magically turn into a mechanic’s lien. Having the pre-lien in place allows the Emerald City Factoring Company to file a mechanic’s lien if payment is not made, which means the Wizards running the show can sleep well at night.
Construction Factoring 102: Payment & Performance Bonds
Performance bonds are used in the construction industry as a tool for the owner of the property being developed to guarantee that the value of the work will not be lost in the case of an unfortunate event (such as insolvency of the contractor.) A payment bond guarantees that the contractor will pay the labor and material costs they are obligated to. Shoddy work, sub-standard materials, and corner-cutting put Emerald City Factor’s factored invoices at risk, because if the owner throws your client off the job, the bonding company can step in and finish the job – and then back charges your factoring client. It’s unlikely that a bonding company will subordinate to the factoring company, and thus the factor’s lien on the receivables may be primed by the big bad bonding company.
So, how do you prevent the Wicked Witch of the West coming through to spoil the party, kick your contractor off the job, and call in the bonding company to clean up the mess? Unlike Dorothy, clicking your heels and repeating “there’s no place like home” won’t prevent the damage done by that under-performing contractor factoring client of yours.
Invite “Captain Obvious” to work for the Emerald City Factoring Company. He’s the guy that usually shows up after the disaster struck, and is rich with advice on what you should have done. These are usually “DUH” moments but, in retrospect, they were so obvious and simple that you may have over looked them. Here’s what Captain Obvious has taught us over the years:
- Have your contractor client share the bid file with you. Go over each scope with a fine tooth comb. Ask the contractor to tell you what % gross profit was built into each unique scope. Use common sense to work out where the estimate may be wildly optimistic. Is there enough gross profit in the estimate for them to have “oh crap” room? More importantly, is there enough room in the estimate to cover the costs of your factoring services?
- Ask about the job costing engine that the contractor is using. Are they plugging in the job budget before the job starts, and then recording costs against the original budget? Ask the contractor how long it takes for their AP accounting staff to enter job costs against each job. The costs need to get added to the job cost engine almost immediately after they are incurred.
- Ask to be shown a copy of a recent “over/under” billing report. This report will show whether or not the job is hemorrhaging cash as the job is happening. If the job is over-billed, the contractor is in a strong cash position on the job. If it’s under billed, it means the contractor has spent more on the job than they have yet to bill. Running jobs under billed for too long is probably what brought the contractor to you in the first place, so don’t be surprised to see this – just monitor it so that you know just how bad the situation might be.
- If your contractor’s eyes gloss over when you ask them about job budgets and job costing and over / under billing, then you might have a different sort of problem on your hand. Without these tools in place, the contractor will have a tough time knowing whether or not he’s profitable and whether or not he has the longevity to complete the job. Yes, even with factoring company in place, there’s no avoiding disaster when working with a contractor who doesn’t watch his budgets.
- Get a hard hat and a vest with fashionable fluorescent reflective tape. Travel to the job site at least once a week to make sure progress is being made and to be visible to your client. You’re in luck if you have a pick-up truck and even better if you have a pick-up truck with a diesel fuel tank in the bed. This way you can top off the heavy equipment on the job site so that they’re ready for a full day’s use tomorrow!
- While at the job site, cozy up to the project manager / superintendent that is in charge of your client’s performance. He’s usually the person who will approve or deny the progress billing requests. Be up-front with him and tell him that you’re the “money guy” behind your client. Ask the project manager regularly about progress on the project. Are there dicey issues that you can take up with your client to make the job run smoothly?
- Be the guy that a) brings the donuts and coffee into the planning meetings and b) has a cooler full of sodas and snacks for the laborers. Develop relationships with people on the job. Not only are you looking after your investment, but you’re sure to get “insider” information about the performance of your client. Another added benefit to being on the job site consistently? More clients. As you’re talking with the project manager, it’ll be no secret what you do. I can’t tell you how many clients Emerald City Factors has earned as a result of job-site schmoozing.
- Most of all, be useful on the job site, and then get out of there. Bring lunch to the trades people. Ask your questions. Get invoice approvals. Find out when the city / county inspector is coming to inspect your client’s work (and be there for those inspections!) Do no harm.
- Require that your contractor provide you with weekly job cost reports. Measure the actual job costs against the original job budgets. If you start to see a budget getting to the end of its life, investigate. Find out if there are change orders that you don’t know about. Maybe it’s just job cost entry errors (costs being tagged to the wrong element of the job). Don’t accept your client’s word for it when he tells you “I’m on time and under budget.” Expect that he’s not, and verify with proof in the job cost / budget reports.
Construction Factoring 103: Progress Billing & Retention
The c-c-c-cowardly Lion will tell you that the contractual ability to off-set the cost of defects or repairs against previously approved billings is what prevents him from getting into the construction factoring game. In other words, the Lion is afraid that even after the general contractor approves an invoice, somehow he or she can still legally refuse to pay any or all of the approved invoice. This is typically when retention comes into play. Retention is a process by which the general contractor will hold back usually 10% of a progress payment. This 10% is not paid to the contractor until the end of the job, when all the punch list items are completed, and when the owner is satisfied with the material and workmanship. Think of it as a “reserve” account of sorts.
Be sure you understand that a progress billing invoice may have retention – if so, don’t advance against the full value of the invoice. Gauge your advance based on the invoice amount AFTER retention is taken out. Don’t fund unless and until you get the general contractor to physically sign your approval letter. Put language on your approval letter that says something to the effect of: “Invoice approved without offsets or deductions” and then pray that you don’t ever have to defend that language – a costly adventure in the American Justice System!
Construction Factoring 104: Distance Makes the Heart Grow Fonder
Emerald City Factoring Company is located in the Heart of Oz. Let’s say that your construction client’s project is all the way over in Kansas, so there is no chance that you or your wizard staff can visit the job site to protect your investment and market to others on the site. In that case contract with a broker, or a construction manager, to visit the site on your behalf. Get some eyes and ears on the ground at the job site, and be sure to review the budgets and job cost reports on a regular basis. If you want to get really creative, partner up with a bookkeeper who is local to the construction client and job site. Ask that your construction client consider using a chosen bookkeeper who knows how to manage construction job costing and billing. You’ll be singing the praises of Glinda, the Good Bookkeeping Witch of the North before you can say “there’s no place like home, there’s no place like home, there’s no place like home.”
The c-c-c-cowardly Lion gets Courage
It’s always easier to get something done when you have a little bit of experience. Dorothy didn’t get home without taking a few calculated risks. Consider funding a small deal, perhaps a spot factor on a small project will give you some practice but won’t cause you to lose sleep. You can learn the lingo of the contractor (and flatter your client) by asking questions about the business. Or, consider working with non-competing factoring company who does construction and let them teach you the ropes.
Just watch, before long you’ll be chanting in your sleep: “There’s no factoring like construction factoring…”
Steve Ontiveros is the founder and president of The Factoring Place, Inc. a privately held full service factoring brokerage firm specializing in construction factoring deals (including progress billing.) He can be reached at steve@thefactoringplace.com or 510.223.1285
Don’t Get Banned by Your Target Market
March 19, 2013
I’ve watched this happen a lot over the last several weeks, particularly on Google Plus. Businesses both large and small join a community, start posting links to their blog and then they get banned. Some are posting crap and others are posting genuinely good content, but the good content is being pushed on people and nobody likes that.
Communities and forums exist for discussion, not for marketers to disseminate their blog posts with titles like 10 ways for small businesses to maximize profits. Now there are a few instances where it makes sense to post a link to your website, but only if it truly results in a healthy engaging debate and shares. If that doesn’t happen, then you’re probably in trouble.
I have actually had to watch a few people I know in financial services get the boot in communities, and there was nothing I could do to help them. Their brands have literally been BANNED from talking amongst their peers and potential customers and that’s probably the worst thing that can happen. I’ve all seen hundreds of small businesses make the same mistake, younger businesses that have finally decided to give social media a shot, only to be shown the door 10 minutes after they jump in. It’s disheartening. Many communities don’t offer a warning, so the best chance to let sometime know the basics of human interaction, is to do it before they join anything. If you were thinking of joining a community or have been banned by one, particularly on Google Plus, I’ve written up a little road map titled: Banned from a Google Plus Community?
– Merchant Processing Resource
https://debanked.com
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