Have you ever heard the old saying, “Be careful what you wish for or you might just get it”?
It usually refers to the downside of a casually expressed desire. This phrase definitely holds true for anyone who has funded invoices in the factoring industry.
We spend so much time on sales and marketing and then it finally happens – we land a new prospect and they complete our application. We hope the prospect will have prefect credit, stellar account debtors, strong financial statements and be free and clear of any liens or judgments.
More importantly, we want the deal to glide through the due diligence process so we can get the agreement signed and proceed with the funding of new invoices.
Helping Clients Understand How The Factoring Process Works
As great as this scenario sounds I kind of take a different approach when it comes funding new deals. As much as we funders relish strong clients and account debtors, the process should always be an open dialogue where the parties are engaged on how the factoring process works and what means for the client, customer and factor.
“In other words, I want the client to ask me as many questions as I will to them.”
Obviously the due diligence process comes with a complete checklist of questions for the client which also includes the gathering of documents to proceed to the next phase. It’s usually at this point where the friction occurs.
Many times the client does not want their customer to know about us and pulls back when we inform them of the required signed notice of assignment or their customer will have to verify all invoices with us. Sometimes the customer will not sign the assignment or verify.
Most Factoring Deals Come With a Built In Friction Maker
Usually the prospect will have some type of issue such as an outstanding loan with a bank that needs to be subordinated or some derogatory credit issue which requires further explanation. At the end of the day the two parties will have to iron out these wrinkles reach an agreement.
For those of you new to the factoring industry time is your best weapon. Although friction is good, try accommodating your prospect by providing the best service possible. Have a standardized checklist of documents that you require while you perform your review. If there are credit issues or tax liens, address them immediately with the prospect. However, and most importantly, don’t be rushed into a factoring deal without checking all of the boxes on your list. For more information about slowing it down, see our article, “Factoring for the Tortoise and the Hare“.
Experience has taught us that when prospects are desperate for cash they will practically say anything you want to hear to get the deal to slide through the system. So look at friction with your prospect as good thing. It may not be something you wished for but something worth getting.
Don D’Ambrosio is the president of Oxygen Funding, Inc., an invoice factoring company located in Lake Forest, California.
For more information, he can be reached at don.dambrosio@oxygenfunding.com or you can visit his company’s website at www.oxygenfunding.com.