As far as I can tell, every factoring broker and every factoring company claims to have exceptional customer service, that they can fund clients quickly, and that their prices are the most competitive in the market.
Everybody says and focuses on that almost exclusively.
Because of this, factoring companies look the same from the outside. It’s easy for prospects to see how brokers market themselves and conclude that all factoring companies are the same – basically a dime a dozen.
Is factoring a commodity?
Let’s look at the other side of things. Most brokers and factors complain that prospects often don’t treat them well: prospects negotiate harshly, shop incessantly for better terms, and threaten to leave for a competitor at the slightest dissatisfaction. In other words, they treat factoring companies as if factoring were a commodity – no different from rice – believing that one factoring company’s program is the same as any other program.
I must admit that I can see their point. They way that most factoring intermediaries market themselves, you’d believe they are commodities. The truth is that, while many factoring companies are similar, factoring is not necessarily a commodity. In fact, there are many differences between factoring companies – important differences that can spell the difference between success and failure for a client. For example, factors differ in:
1. Customer service
2. Funding speed
3. Price
4. Line size (maximums)
5. Ancillary services (billing, fuel cards, etc.)
6. Flexibility
7. Application costs
8. Program flexibility
9. Size of the advance
10. The amount of risk they are willing to take
11. Industry knowledge
12. Location
13. Accessibility to owners and decision makers
14. Client demographics
Unfortunately, most brokers focus their marketing efforts exclusively on the first three items on this list: service, speed, and price (one exception is the transportation industry, where factors also promote their ancillary services). However, wouldn’t you agree that good service, good delivery speed, and good price are three things you would expect from any and every company that you would consider working with? In my opinion, service, speed, and price are basic competencies that every factor should have and should not be considered “differentiators.” Focusing your marketing efforts exclusively on these features is one of the reasons why factoring is viewed by many as a commodity.
As a broker, you need to ask your factors if they can deliver more than the basics.
This can be a difficult conversation. But if you partner with factors who market themselves as commodities, how will you be any different?
So, are you different?
When you interview a potential factoring partner, your main tasks as a broker are determining if they are good and how they differ from the rest. You can always ask them these questions, but, surprisingly, most resort to talking about service, speed, and price.
You often need to push a little harder to get some “golden nuggets.”
In reality, most factoring companies do have a specialty – something at which they excel. Unfortunately, not every factor is good at articulating those specialties to clients or brokers. Often, it’s up to you – the broker – to interview your factoring partner in a way that reveals their true strengths. This approach allows you to choose the right factoring partner. By knowing their strengths, you can market them effectively and improve your revenues.
Specialization as differentiation.
One way to avoid falling in the rut of generalization and becoming a commodity is focusing your efforts on a particular industry or two. Instead of becoming someone who knows general factoring fairly well, become the factoring broker with expertise in a specific industry.
For example, if you have experience in construction, you could focus your efforts on construction factoring or, more specifically, on a segment of the market such as drywall installers, roofing companies, pavers, or mechanical contractors.
Targeting this type of niche allows you to develop expertise in this market segment and become well known in the field. Obviously, specialization is a competitive differentiator and works well only if you’ve done a good job selecting factoring partners that fit that market.
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.
I wish factors wanted to differentiate their service! We at Masslogics have integrated with factoring software, and can offer factors GPS tracking, date/time stamps, electronic documents, advance notice of future orders, and a lot more, all with little to no cost to the factor.
One might presume that a process with more data, fewer errors, GPS confirmations and no cost would be a no brainer for factors. However, I found this notion to be exactly the opposite to reality. I firmly believe that factors only move as a group and will continue to oppose innovation from any source outside the confines of their small world.
I do try to weed out the factors and private funding companies I broker for. I like to build a relationship with those representatives. Money comes from people, not a funding company. This level of connection with my factor preps has played BIG with my clients level of credibility in the process. One of the things that Factors could take into consideration is their brokers are also their customers. It isn’t always about what the factor can do for our mutual clients, it’s about how we as brokers are treated. How we are compensated for our hard work to get the client to them. And the Factors conversion ratio.
Thanks,
Pamela Weir CCFC
Weir Capital Connections
Colorado Springs, CO.
Pamela –
You make a good point – some factors are great with brokers and others aren’t. It’s a matter of finding the right fit and the right contacts.
–Marco