How To Select A Market For Your Factoring Company

As far as I can tell, every factoring company is an expert and is also the best in the market when it comes to transportation, staffing, and security guard deals.

Everyone offers the best terms, service, and turnaround times. At least, that is what they claim.

Unfortunately, from a client’s perspective, there is little difference between factors. They all offer similar plans with similar benefits. So, factoring companies fight tooth and nail for every deal in these industries.

However, every year, new factoring companies flock to those industries because they are coveted by factoring companies. In doing so, they face brutal competition from more established and better funded factoring companies. They usually lose. In reality, they had little chance.

So, what can someone that is just starting a factoring company do?

Should they focus on those hyper competitive industries and hope for the best? Or, is there a smarter approach?

What to do if you are just starting

If I were just starting a factoring company, the first thing I’d do is steer clear of the industries that most factoring companies pursue. I’d rather be the best-known provider in a small industry or two, rather than just another player in very competitive industries. Granted, you will face some tough challenges because factoring may not be well known in your chosen industries, but at least you won’t be competing against everyone else.

Selecting an industry

Selecting an industry is actually easier than you think. The market niche just needs to meet three criteria:

• Do you know the industry well?

• Can the industry be factored?

• Are factoring companies focusing on the industry right now?

Do you know the industry well?

This is an obvious point: you should focus only on industries that you know well. Try to focus in an industry that relates to your past work experience so that you can leverage your knowledge and past contacts. If that approach does not work, spend some time learning the ropes in a new industry that interests you. Find out how things work, who the players are, and how contracts are structured. Bottom-line, become knowledgeable.

Can the industry be factored?

Spend some time trying to determine if the industry lends itself to factoring. Specifically, review their standard sales terms to ensure they are factorable. Some industries may appear factorable at first sight, but they aren’t. One example is software development. While it’s an interesting industry, it usually operates with progress payments. Additionally, many software support contracts are billed in advance. And lastly, payment delays are common – even after software acceptance. This is because major software bugs for custom developed software tend to appear shortly after a project has been delivered but before payment is due.

Are factoring companies working in that industry?

Before going after a specific marketing niche, see if other factoring companies are in there. It’s ok if you find competitors, but avoid overcrowded niches or you risk of running into the same challenges I discussed earlier.

One last point – Start local

Factoring customers perceive that working with a local factor is better. Use this perception to your advantage when selecting a market niche. Choosing one that is local to you allows you to get a step ahead of your competition – simply because you can meet clients in person.
About Marco Terry

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.