Maximizing Commissions: Top Industries for Invoice Factoring

In the competitive world of commercial finance, brokers and ISOs are constantly seeking innovative strategies to boost their commissions. If you have noticed that your commission income growth has slowed, it might be time to explore untapped opportunities within the realm of invoice factoring.

With its broad applicability and increasing demand among small and medium-sized businesses, invoice factoring stands out as a lucrative option for finance professionals looking to maximize their commission stream. Let’s explore the world of invoice factoring, where nearly every industry with accounts receivable can unlock new opportunities.

Industries in Demand

Invoice factoring is a dynamic business funding solution that has proven to be a lifeline for businesses across various industries, especially when traditional financing becomes elusive due to high interest rates, stringent bank loans requirements, and a complex regulatory environment. The following are some key industries where invoice factoring services are in demand. 

Construction – General Contractors and Subcontractors:  The construction industry generally operates on a contract-by-contract basis which can have variable payment terms. Construction companies, as well as the trades and vendors that support this industry, often face cash flow challenges due to project delays, growing material and payroll costs, and delayed payments from project owners.  Invoice factoring helps bridge the gap by converting unpaid invoices into immediate cash flow. For more information on the challenges facing the construction industry, please refer to: Construction Industry Overview for 2023: Navigating the Challenges and Uncertainty – Capstone (capstonetrade.com)

In 2024, construction associated with manufacturing, transportation infrastructure, and clean energy infrastructure could receive a boost from three key pieces of legislation passed in 2021 and 2022 – the Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), and the Creating Helpful Incentives to Produce Semiconductors Act (CHIPS).

Manufacturing: Manufacturers deal with production costs, raw material expenses, and payroll. Factoring allows these businesses to access funds quickly to help them maintain steady cash flow and enable them to meet ongoing production demands.

The IIJA, IRA, and CHIPS legislation has already spurred record private sector investment in the manufacturing industry with an infusion of funds and tax incentives into U.S. manufacturing across various sectors – including semiconductors, clean energy components, electric vehicles, batteries, and the parts and raw materials that go into these products. This bodes well for future growth in this industry.

Mining and Metals: The main driver for growth has been the introduction of new technologies and innovations that use lithium, copper, and other metals. The significant push to curb carbon emissions and pivot to greener technologies has created a growing need for these metals in things such as wind turbines, solar panels, electric vehicles (EVs), etc. The mining industry relies on consistent cash flow. Factoring provides liquidity to cover operational expenses and equipment maintenance. 

Oil, Natural Gas, and Renewable Energy: Energy companies are capital-intensive and can have irregular payment cycles. They experience fluctuations in revenue due to market dynamics.  Also, as government mandates and legislation force a shift towards sustainability and reduced carbon emissions, companies in renewable energy sector will need the financial stability that invoice factoring can provide. Factoring services assist them in smoothing out cash flow fluctuations. For more information on this area, please refer to: Green Energy Initiatives Are on the Rise and So Is the Demand for Funding – Capstone (capstonetrade.com)

Suppliers, Distributors, and Wholesalers: Distributors, wholesalers, and suppliers play a crucial role in the supply chain. Utilizing invoice factoring helps these businesses manage inventory and handle large orders without waiting for customer payments. 

U.S reshoring and onshoring accelerated in 2023 as more companies reduced their geopolitical exposure and shortened their supply chains to avoid future disruptions. This paradigm shift in supply chain management will increase business opportunities for suppliers, distributors, and wholesalers.

Service Businesses: Service businesses, including consulting, marketing, IT, security, and other B2B service providers, are uniquely structured and often have fewer physical assets, equipment, and/or inventory that can be leveraged or used as collateral for financing. It can be extremely difficult for these types of business to bridge gaps in its cash flow and qualify for traditional financing options such as a bank loan or line of credit. Invoice factoring solves this problem by providing businesses with immediate cash flow for outstanding account receivables.

Government Contractors and Vendors:  Businesses that work with government agencies can experience a slow payment process.  Factoring helps these businesses maintain liquidity while awaiting payment. The following blog and whitepaper may help in developing prospective clients that are contractors or vendors to government agencies: Infrastructure Investment and Jobs Act Funding Distribution Delays – Capstone (capstonetrade.com)  White Paper: Infrastructure Investment & Jobs Act – Contract Opportunities and Funding Analysis – Capstone (capstonetrade.com)

Technology:  Tech companies, including startups, often experience irregular cash flows.  These companies prioritize on technological advancement and innovation, which encompasses the automation of jobs and processes, as well as the adoption of data driven machine learning and AI to enhance customer operational efficiency and expand market share. As the technology landscape is constantly evolving, factoring can provide a flexible business funding solution to support growth and innovation.

Temporary Staffing: Temp agencies and staffing companies typically pay their employees weekly or bi-weekly. However, they may not receive payment from their clients for 45+ days.  Factoring can be used as a solution to ensure payroll requirements are met on time. For more information on temporary staffing, please refer to: Staffing & Temp Agency Funding & Factoring Services | Capstone (capstonetrade.com)

Minority, Women, Veteran and Disadvantaged Business Enterprises (MWDBEs): These types of businesses often lack access to financial markets for a number of reasons. As a consequence, they are underserved by banks and other traditional lenders in their communities. Over the last 10 years, small businesses owned by minorities, women, and veterans accounted for more than 50% of the two million new businesses started in the United States.

Because MWDBEs are underserved by banks and other traditional business funding sources, they represent a large market opportunity for factoring services. And, invoice factoring is easier for MWDBEs to qualify for since credit approval is primarily based on the MWDBE’s customer’s credit, not the credit profile of the MWDBE.

Selecting an Industry/Sector

Before going after a specific industry/sector, be sure to check if there are other brokers in that area.  It’s okay if there is competition; however, you may want to avoid overcrowded areas to avoid running into challenges. The criteria to determine if you should proceed with a particular industry/sector include:

• Do you know the industry/sector well enough and have contacts that can help you identify prospective clients?
• Is the industry able to be factored? Most are, but there are a few, such as cannabis, gambling, and adult entertainment, that are not candidates for factoring.
• Are factoring companies currently focusing on a particular industry/sector?

As a finance broker or ISO, it’s important to remember that each industry has its own unique needs. Understanding their specific challenges helps you tailor your services effectively. Other factors, including prospective client employee size, industry experience, and geographic region, also play a role.

By targeting industries/sectors with better growth prospects, you can build a successful broker business while assisting your clients in managing their cash flow and working capital needs.  The key to having a successful brokerage is not only just targeting the right industries/sectors but also building strong relationships with your prospective clients and understanding the specific needs of each business. 

Capitalize on Opportunities to Maximize Commissions 

These industries and sectors are ripe with opportunities for invoice factoring and purchase order (PO) financing.  At Capstone, we have expertise with the distinct challenges these businesses encounter. 

We have been engaged in the commercial finance industry for over 30 years providing client-specific solutions through Factoring Services, Purchase Order (PO) Financing, and Domestic and International Trade Financing. Are you ready to revitalize your earning potential? Now is a great opportunity to partner with Capstone. To discover how Capstone can enhance your commission potential, visit our broker resources.