Articles by
Dr. Anthony F. Cicone
Three Simple Principals
and
a Very Pleasant Surprise
by Dr. Anthony F.
Cicone, CFS 9/1/2004
Several years ago, when I
was starting to get involved in the cash flow industry,
my wife suggested I market my cash flow services through
the Internet. I invested $100 in a one-page Web site,
which was associated with an online magazine. At the
time, I did not understand the power of terms such as
“Web site,” “Internet,” or “online magazine.” However,
in the last three years, through the online presence I
purchased through my initial $100 investment, I have as
of the writing of this article, received over $147,000
in commissions through one transaction.
Shortly after my Web site went online, I received a call
from a woman named Serena. Serena was calling to inquire
about “factoring.” As the conversation progressed, I
learned that Serena’s company did not generate invoices.
I also learned that her company was not working business
to business, but business to consumer. I was about to
tell her that this was not a factoring deal. Instead, I
remembered an advertisement I had seen in the American
Cash Flow Journal®. Although I didn’t thoroughly
understand the advertisement, I understood enough to
make me think that the funding source might be able to
help Serena. The funding source was Monterey, and indeed
they were eventually able to help.
By way of review, my first point is in regard to
marketing. I don’t think you should infer from my
experience that the road to success in the cash flow
industry is to market your services through an
inexpensive Internet presence. I hope that what you will
glean from my experience is to listen to your spouse or
friends when she/he/they make a suggestion and be open
to marketing concepts that may be unfamiliar to you.
My second point is not to allow the limitations of
language to limit your success. Every industry has its
“shop-talk.” It’s important that we not expect others to
speak our language. Our job is to understand what a
client needs even if they are asking for factoring when
what they really need is consumer receivable financing.
This particular prospective client was in the process of
going public while at the same time looking for an
infusion of cash through the sale of a sizeable
portfolio of contracts that they had been financing
in-house. After having been turned down by the first
funding source I brought them to, they were finally
accepted for funding by a second source to which I
introduced them. I was excited because this was a very
sizeable transaction, and I was only a few months into
my new cash flow business. The financing source was also
pleased and comfortable with the transaction. The client
was even more excited than I was. Serena shared the
exuberance of the company with me and faxed me press
releases that reflected their enthusiasm in the
possibilities that financing now afforded them.
Very shortly after that, the client completed the
process that enabled them to become a publicly traded
company and, in addition, acquired two other smaller
companies. The acquisition of additional companies only
fueled my excitement about the transaction. However,
with the acquisitions came a corporate restructuring. I
slowly learned that the new corporate team had some
reservations about the financing that had previously
been approved for them. As weeks dragged into months, I
became painfully aware that the new management team had
decided that financing was not necessary. They would
continue to carry the notes themselves.
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The reality of the new management’s decision not to use
the financing that their predecessors had so diligently
sought finally sunk in, and with it came a wave of
discouragement. My final conversation with one of the
key principals brings me to my third point. There was a
part of me that wanted to express my displeasure at
having wasted my time and energy in the course of
approximately eight months. Instead, I said a friendly
good-bye and expressed my appreciation for the
opportunity to have worked the deal to the best of my
ability. My third point is that when you are in a
situation where what you have worked so hard to achieve
is crashing down around you, more often than not it will
be advantageous to say and do the exact opposite of what
you would like to say or do.
About two years later, the same principal called me back
to say they had decided that financing was a necessity
for them. To complicate things further, the funding
source that had approved their financing had gone out of
business. I asked the principal a direct question, “If I
can find you another financing source, will you use the
financing this time?” Her answer was, “Yes!”
A major roadblock to completing this transaction was
that the funding source was in the midst of a litigation
process. However, Monterey was able to understand the
situation and eventually approved the funding.
To do their due diligence, the funding source will
typically require corporate and personal financials,
corporate and personal tax returns, articles of
incorporation, an unexpired business license, a copy of
the first and last page of a liability insurance policy,
a copy of the first and last page of the building lease,
the client’s promotional material, a copy of the
consumer contract and credit application, and a
non-refundable $500 origination fee.
To review a portfolio purchase, the funding source will
typically need the following: original balance, original
term, remaining principal, aging, delinquency, APR,
monthly payment, next due date, and the number of
payments made. The funding source will also need to know
the paper is credit qualified. Usually, the client will
be asked to provide 10 samples of contracts/credit
applications so that the funding source can get a feel
of the credit quality of the paper.
However, the consultant is generally not required to
gather this documentation. The funding source will do
this. The very pleasant surprise is perhaps the most
overlooked reality in the cash flow industry, and that
is the consultant makes a 2 percent commission of the
total amount financed, less the reserve and buybacks. In
addition to that, the consultant can make 5 percent of
the funding source’s total fees generated on accounts
placed for servicing as well as 5 percent of the funding
source’s total fees generated on accounts placed for
collection work.
I’ve learned that many consultants do not readily grasp
the implication of what I’ve stated above. To put it in
perspective, the three factors I know of in my immediate
area of South Carolina charge approximately two discount
points for receivables that stay out for 30 days. It’s
impossible to compare apples to oranges, but one can
start to realize that the commission to be realized in
consulting on a consumer receivable transaction
approximates what some factors make in doing a factoring
transaction. In addition, as I’ve shown above, the
consultant is positioned to make commission on the
servicing of the contracts, as well as the collection
work on delinquent accounts.
What is extremely attractive to me is that I don’t have
to be involved in collecting the paperwork on a consumer
receivable transaction. The funding source does that.
That is important to me because it allows me to put more
time into the real estate investment side of my
business. The bottom line is that by consulting on a
consumer receivable financing transaction, I can make
about what a factor makes on a factoring deal without
assuming any of the responsibility for the time
commitment involved in performing the due diligence.
This leaves me time not only to function as a financing
source on the real estate investment side of my
business, but also allows me time to invest actively in
the stock market.
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