Are They Really a Factoring Prospect? The Telephone Interview

In my early days in the factoring business, prospect calls were few and far between.

Whenever the phone rang, I grabbed it quickly and hoped for the best. In those days, the process of qualifying a prospect could take me up to an hour. I would have long detailed conversations, learning everything I could about the client’s business. After these detailed calls, I would hand the client off to the factoring company I thought would help them best.

But there were two problems with this strategy.

First, it was not a very effective use of my time. Especially when I found out, 45 minutes into a call, that the prospect would not qualify for factoring.

And second, it did not scale well. It wasn’t long before I was on the phone eight hours a day. In those days I had three cordless phones in my office because I would easily use up the battery of two during the day. By the end of the day, I was exhausted.

Long factoring calls can be a waste of time.

Although I was working hard, I was not being very productive. I also started to realize an interesting thing: the longer the call, the lower the chance of closing the deal. Prospects that rambled for too long had the lowest chances of becoming a client. On the other hand, prospects that were succinct, to the point, and had short productive calls usually became clients.

Get to the point. Then, get out.

So I decided to optimize this process by doing two things:

a) I started timing calls, and

b) Asking key questions – first.

The objective was to keep a call at 15 minutes and get all the relevant facts from the client. By the way, I accomplished this without hurrying my clients. It was a matter of being effective and maneuvering the call.

This is the client questionnaire that I use. By the way, I do not read the questions out loud like a telemarketer. That is counterproductive. Instead, I use them to guide the conversation naturally as I speak to the client.

Question 1: How can we help you?

The objective of this question is to determine if factoring is the right solution for them. It may sound obvious, but a lot of folks call me asking for solutions that I don’t offer, such as seed capital for a business, real estate loans or other products. If factoring is not the right solution for them, I let them know and I let them go.

Question 2: Can you describe a typical transaction?

Even though factoring may be the right solution for them, they may have a transaction structure that can’t be funded. Here is one example of a transaction that does not work. We had a client that gave their customer up to 60 days after delivery to inspect the products and return it. Also, payment was due after 60 days. The customer was unwilling to verify when the inspection had been done and if it had been successful. This transaction could not be funded because we never knew if the customer would return the product and not pay for it.

Question 3: Who are your clients?

You can only finance the transaction if you know the clients have good commercial credit. The transaction won’t work If the invoices are due from companies with limited credit, no credit or payment problems.

Question 4: How have you financed your business up to now?

This is an important question, because if they have business loans, lines of credit or similar products, they will probably have a lien against their receivables. Financing companies with other types of funding is difficult because it requires that the other creditor subordinate their lien position to the factor. As you can imagine, few are willing to do that.

Question 5: Have you had tax/legal problems in the past?

Nothing will kill a deal faster than serious tax, bankruptcy or legal problems. This is often an uncomfortable question to ask, but it’s best to ask it in the first conversation. If they have issues, bringing them out in the open allows you to discuss them with the factor to see if they have a solution.

They passed the 5 factoring prospect questions. Now what?

If all goes well, you should have only taken 15 minutes to go through this process. It can take a little longer at times, but no more than 20 minutes. This should give you enough information to either pass the lead to the factor for further review, or close it all together. That’s an improvement of 300% to 400% in the use of your time.

About the Author:

Marco Terry is the managing director of Commercial Capital LLC and Commercial Capital LLC (Canada), a leading factoring and purchase order financing intermediary. He can be reached at (877) 300 3258.