Although invoice factoring has become a bit more apparent in business finance today, misunderstandings, fears and objections are still quite common.
Being prepared to hear and address objections or questions is the most professional approach to these encounters.
Fortunately, the issues discussed herein are the most common concerns expressed by prospects and from my experience in both commercial and healthcare factoring will arise in almost all presentations or conference calls.
“Will The Factoring Company Control Payments?”
As a starting point let’s first understand that the factoring process takes significant (if not full) control over the client’s incoming cash flow stream. Since the factor usually has very little other collateral securing these transactions, the payment stream is the factor’s security blanket. This aspect of the transaction must be dealt with carefully, precisely and directly!
Our first example of a prospect’s fears therefore is the factor’s full control and domain over the incoming payments from the account debtors. There is almost a claustrophobic feeling on the part of the prospect at the anticipation of all cash movement being controlled by this potential finance company.
In my calls, I ALWAYS address the fact that this process will be put in place along with notification of the account debtors to pay my bank account. However I also include the fact that the prospect’s posting clerk will have daily visual access to the bank account showing deposits and even the checks. This way there is no posting delays and the A/R aging can still be managed by the prospect’s collections process.
By dealing with the realities of how the process works, we will uncover the concerns of the applicant regarding this particularly inflexible aspect of factoring, and we’ll immediately know if there is a future for this transaction.
“What Will My Customers Say About Selling Invoices?”
The next most common issue is the prospects perception that his customers (the account debtors) will think less of him because he is selling his invoices. “What will my customers say about my selling my invoices?”
I ease the concerns of prospects by explaining that Fortune 500 companies use this strategy to finance their businesses because it is not debt and strengthens their balance sheet. To follow I also explain that the customers whose invoices are being sold, have other vendors doing the same thing so it will not be a surprise. Finally the customer will realize that his vendor (the prospect) will be able to offer better payment terms based on this finance facility.
“What Are the Fees and Commitments for Factoring Invoices?”
Finallly, another issue is up-front application or underwriting fees. We offer our prospects a “no up-front fee” program however we do require a one year commitment. This commitment allows us to recoup underwriting expenses such as filing and searches, audits (in our healthcare finance program) and other similar expenses associated with new transactions.
If you as the consultant work with funders who have due diligence fees, they must be addressed honestly. It has to be made clear to the applicant that these costs are not always recouped by the factor especially if the transaction never closes, so therefore they are fair and reasonable. In the course of doing business the applicant himself/herself will certainly pass on similar expenses to his/her customers as well.
Prior to doing a call or visit with a potential client, anticipate the issues, face them honestly and don’t sugar coat them. If you can, have your funding source do the call if they provide that service.
Our procedure at Xynergy is to do all calls with the prospect and the referral source on the line. It serves both as a learning process for the consultant and it provides credibility for the consultant who actually brought the funder to the call. Best of all, the funder has the answers to all questions and concerns, and is the only one who can give advance rates and pricing thoughts if the call goes well enough.
About the Author: Fred Leder has been actively involved in the specialized healthcare financing niche for over a decade.
Xynergy Healthcare Capital LLC is a factoring organization focused on small to mid-sized healthcare providers nationwide. For more information contact Fred at (954) 489-6460 or by email at email@example.com.