The Factor Guru

Tips on accounts receivable financing and business practices.

Archive for October, 2008

Transportation Factoring: Feedback Wanted

Oct 28

Posted by Gen Merritt in General Information, Operations | Comments off

I have been contemplating (…or have already started…) writing a guidebook for transportation factoring. This continues to be more of a ‘niche’ industry when it comes to transportation factoring. In this venture, I am seeking feedback. In the post below, I have listed some questions and summarized feedback to those questions we have received that would be included in that manual/guideline. Any interests, feedback, suggestions would be helpful. Thank you in advance for your input and continued interests in this weblog:

Can a carrier operate outside of their base state after they have applied for authority? If a carrier is transporting exempt commodities and has a USDOT number, they may operate as an exempt for-hire interstate motor carrier without an MC number… Simply applying for operating authority is not sufficient.

Can a contract carrier broker loads? No. A contract carrier cannot broker loads without…

What is Intrastate Authority? Intrastate authority is the right granted by a state to commence for hire trucking operations within the borders of that state only. If a load’s origin and destination are within the same state then intrastate authority may be required…

What if the carrier is operating without their authority? Operating without authority can lead to civil penalties… invoices generated by carriers who are operating without their authority may be considered invalid and would not be subject to payment by an account debtor…

Is double brokering legal?  Yes but…

After reading everything about double brokering, I am still confused on what this is? Double brokering is where one broker brokers a load to a trucking company with contract authority. Then, that entity in turn brokers the load to another contract carrier, without the knowledge of the first broker…

Feel free to comment or email me directly at support@factorguru.com.

Wishing you success. The Factor Guru.

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It’s All About the Billing… No Surprises

Oct 23

Posted by Gen Merritt in Operations, Sales and Marketing | No Comments

It seems like an easy question when you are meeting with prospective clients, “What do you do?”  They tell you and walk you through on a ‘high level’ how their business works.  They explain some of their history, how they got involved in the business, where their business is headed, what their customers are like, and sometimes much more than you ever thought of asking.  Within this information are some basics that we sometimes can gloss over, especially since they seem so fundamental: they receive an order, sell a good or perform a service, and they complete it.  What more is there to know? 

Sometimes, more than you thought possible… 

The #1 reason for delay of an initial new client funding can be attributed to not being able to structure a funding solution because the information is received late in the game. This information can include client names not being accurate in various places, including on the invoice, payment requirements being maintained including insurance needs and licenses, and more typically, the customer/debtor terms of the order directly affecting the payment of each invoice.

For invoices of any significant size, a contract, purchase order or other documentation outlining the company’s responsibilities between your prospective client and their customer is almost sure to exist.  Orders generally reflect the agreed upon price, the payment terms, what triggers billing, any insurance requirements, potential offsets or assignability, and more… Because of this, the next time you receive a complete application package and have any doubts about fully understanding the prospect’s business and billing (and I mean ‘any’ doubts), consider phoning the company again for a more in depth discussion prior to processing their application. 

Even if you are in the process of waiting for a prospect to respond with a completed application, what better reason to make that follow-up call and engage them than having them talk to you more about their business and how they operate that business. Understanding what they do can only help you, a factor, and the client, as they will not have to deal with ‘surprises’ later. Have them describe their billing processes and their customers’ payment history.  The company may even become more comfortable with you because you are taking an active interest into their business and truly how it works – you’re taking that extra step to build the relationship – you are showing them you want to understand their business and their needs.

It is always better to understand this dynamic prior to sending documents… prior to leading a company on (as they say). Why waste your time… or theirs. No surprises. That should be the motto, right?

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More on Payroll Taxes

Oct 19

Posted by Gen Merritt in Accounting, IRS Information, Operations | No Comments

Getting back to a prior question… “Why are payroll taxes important?”

Delinquent taxes and IRS liens can be very disruptive to businesses and to lenders/finance companies. If companies are unsure how to calculate these taxes or what effect delinquent taxes may have on a business, visit the IRS Payroll Taxes Educational Module  and other information available from the IRS at www.irs.gov. Sometimes, when working capital becomes tight, the last bill to be paid is usually the payroll tax bill due the IRS.

Once delinquent and should such taxes remain unpaid and continue being past due, penalties are assessed. Eventually, a Federal Tax Lien (FTL) would be placed on the business. Many times, the lien filing date is for a period from up to two or three years ago.  The tax period will be reflected on the lien filing.  Any tax periods since that date would need to be evaluated to see how far behind a company truly has become on their taxes. 

When a Federal Tax Lien (FTL) is filed, it is a negative item on the credit bureau report of the company.  It may also result in creditors calling in their notes as they become aware of the FTL.  The FTL generally becomes the most senior claim against the company’s (or debtor when referring to UCC and liens) assets with the exception of first mortgage holders who have properly filed financing documents. The FTL may also displace the primary security position of factoring firms lending on accounts receivable and bank revolving lines of credit 45 days after filing (each situation is unique and must be considered on individual circumstances). Certain claims may trump an FTL such as legitimate mechanic’s liens, local taxes, and perfected landlord liens.

In some jurisdictions, local law provides for separate filing of liens for real property and personal property. In that case, the IRS may file two identical liens, one under personal property records and one under real property records. It is important to note that the IRS does not necessarily have to file under the exact legal name of the corporation and may file under a ‘variety’ of the name.

The FTL is the basis for IRS legal authority to foreclose on debtor assets by conducting a seizure. Since the IRS Reform Act of 1998, seizures by IRS Revenue Officers have dropped dramatically. The lien is not to be confused with an IRS levy. The IRS can levy on a debtor taxpayer’s bank accounts or wages without a FTL. The IRS only needs a valid assessment and must have served legal notice in the form of a certified mail letter to the company’s last known address 30 days prior to levy. However, often the IRS has filed an FTL before levy action even though it is not required.

When a FTL occurs, the lien must be resolved.  This is not just for the business owner themselves, as the IRS will eventually seek collection from the customers of the business as mentioned previously, but also for any secured lender/commercial finance company.  Again in the case of the factoring company, the IRS will ‘prime’ the liens in place.  The factor will have 45 days from the earlier of their discovering the lien or from the date of the filing to essentially collect out of the funds exposed on the assets purchased.  Any monies sent to the company after those dates are subject to the IRS lien filing. 

This does not affect monies already sent to a company (i.e., a term loan based on equipment or real estate whereby the funds were paid up front and the payments are amortized over a set period of time).  However, in the case of a line of credit or factoring where new funds are being paid out while collections are being paid, that lien position would be critical.

This can become a concern for factors and lenders. Resolution alternatives are available. We will address those in a future posting. Until then, monitoring these taxes on an ongoing basis can be critical to a factoring company.

So, until the next time, happy reading…

The Factor Guru

 

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Your Mission Statement: Know Your ABCs. A guest blog by Sanjay Parikh.

Oct 11

Posted by Sanjay Parikh in General Information | No Comments

Sanjay Parikh is a leading senior executive with over 20 years in the field of information technology specializing in data security. He currently works for a division of a publicly traded company and was formerly the director of security for Blockbuster. Here are his thoughts on developing teams and achieving the goals and missions for the overall business…

 

Sometimes when I talk to people in leadership roles about the teams for which they are responsible, the subject of what characteristics would define an ideal employee raises its head. While everyone can describe the characteristics or principles that embody the ideal employee, not everyone can say that their team is aware of those characteristics or principles. They usually try to help their employees by pointing out their weaknesses during their performance reviews. However, the characteristics that they want continued are not emphasized in a manner where everyone knows how employees should behave.

 

Communication of the department’s or company’s principles is one key to forming an effective team. One of those fundamental principles that I believe should be taught is the ABCs. If each person takes responsibility for improving their ABCs, the team they represent will become an asset to whom they represent. What are the ABCs people ask? Reading, Writing, Arithmetic? Basics of leadership? While these are good guesses, the ABCs I am referring to are an acronym which stands for Accountability, Business Acumen, Communication, and Service.

 

Each person should be accountable for their actions whether they made good or bad choices.

 

Many people these days blame others for their own mistakes or problems. In order for people to be accountable, they have to feel valued. Once you provide that sense of value, expectations of behavior will drive accountability. When they take responsibility, they gain self-respect.

 

Each person should take the time to understand their business of what they do, the critical areas, critical seasons, etc…

 

The increased knowledge of business acumen creates situations where the employee’s specialized knowledge and perspective can become a strategic part of the business’s long term success. Business acumen goes beyond basic financial information. It incorporates an understanding of how corporate strategy impacts those key numbers.

 

Each person should understand the importance of effective communication within their company environment. Some characteristics of effective communication reflect:  

 

Focus the discussion on the information needed. Keep on track.

Use open ended questions to expand the discussion and close ended to prompt for specifics.

Encourage dialogue through face to face contact when possible.

Always state your understanding of what you are hearing.

Summarize the key points upon conclusion.

 

Each person should understand that their service to all types of customers (internal and external) is paramount to their team’s success.

 

Value is created by providing a benefit, solving a problem, meeting a need or helping a customer. A customer wants to receive that value in terms of quality, service, courtesy, customer listening and ability to resolve their issue. People that provide this type of customer experience will usually be rewarded by customer loyalty.

 

While it is easier said than done to implement new behaviors or strategies, take the time to see what principles your department or company emphasizes. If you can get your employees to all start from the same vantage point, you will be that much more ahead when trying to build those behaviors of the ideal employee.

 

More about the author: Sanjay Parikh has a successful track record for leading and developing groups of people while integrating and positioning his department as an asset for the company. Sanjay participates in various networking groups that help spread his philosophy of business. He is also currently working with multiple school districts in Texas to develop new curriculums to help foster math and science learning for elementary students.

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What’s in Your Box?

Oct 5

Posted by Gen Merritt in Books to Read, Sales and Marketing | No Comments

Imagine a box. Any type will do. It could be a cardboard box, a pink or red gift box, one wrapped in newspaper or even shiny paper. It may even have a big red bow on top. The box is yours, so picture it clearly. Only you know what is in it. The question, however, is do others know what could be in there? Could they even guess? How can you make what you do ‘stick’ with them?

Well, if they know you then they probably can guess… if they cannot, then nothing specific exist sufficiently in their mind to think of you when they have something for you… such as…

a Deal…

In work, we all have niches we provide. We have certain transactions we specialize in and others in which we choose to steer clear. You, in your job, may look at several types of industries in the clients you work with such as medical, government receivables, construction, trucking carriers and/or brokers, staffing or manufacturing. You may only prefer deals that are under or over a certain dollar size or in a set geographic area.

Do people know what you do? Do they have a good understanding? Have you explained to them enough so they could guess what’s in your box? And, almost more importantly, will they remember? Does what you do ‘stick’ with them? Or, is what they know so generic that your box could hold just about anything? What makes you any different than what everyone else does?

If not, they will probably never be able to ‘guess’ what specifically could fall into your niche, or what you may include in that very vast space where any factoring company may fall. In this, they may never know what type of transaction to send your way. Unfortunately, you would just be the same as everyone else with that same generic box. Nothing special… Nothing that stands out… Nothing memorable. The only exciting benefit you may offer may be your packaging: the big red bow, the curly ribbons, and the shiny paper… the pretty marketing-driven features.

So, how do you know? How will you know?

Are you seeing transactions that are completely out of your range, target market or pricing? Getting others to understand what you do may help.

Some marketing people give the basics of their target industry, size, pricing, and other details. They key is: will you remember? Tom Siska, with Working Capital Solutions, continues to write for The Commercial Factor, The Secured Lender, and the ABF Journal. In most of his articles, he continues to address knowing who you are and sometimes, more importantly, who you are not. I tend to agree with this.  

Successful marketing people seem to develop more effective communication tactics (not sales pitches) in helping others remember what they do (in understanding their target market). I know some talented marketers that should a deal come my way and sound even close to what they would do, then I will definitely call them. Why? Because I know what goes in their box… therefore, I know what may go around their box.  Ultimately, I know if they may be able to do the deal!

One of my favorite methods of remembering: stories. Opportunities to hear examples of deals (why they worked and why they didn’t; how they were done) are lasting. They stick. People can relate to them. Stories can help seal the deal. People remember.

After reading Made to Stick, I further believe and encourage such stories. (I also highly recommend reading this book. By the way, it is a shorter read than the 8 ½ hour book on tape — or CD as the case may be. And, yes, I have both because I have ‘issues’… as some have said). The communication styles referenced in this book may help others remember more about you and what you do.

These messages leave a lasting ‘stickiness’ factor. And, at the end of the day, if communicated correctly, I know I always remember what goes in everyone’s ‘box’ for the types of transactions they are looking to fund.

So, again, what’s in your box? How do people know? How will they remember? How will what you do ‘stick’ with them?

Wishing you success… the Factor Guru.

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