Top 3 Mistakes That Factoring Intermediaries and Brokers Make

Factoring IntermediariesAlthough factoring is not a seasonal business, per se, it does have its high and low periods during the year. We are about to enter what is often the busiest period for the factoring industry – mid-September to mid-December.

This is an important period for your business, and it’s critical that you operate efficiently in order to capitalize on as many opportunities as possible.

To achieve this result, you need solid factoring partnerships in place, a well-developed sales technique, and a process to manage your sales channels and increase your closing ratios. At the same time, you must be careful to avoid these common deal-killing mistakes.

Not knowing your product well enough

This very common problem primarily affects newer factoring intermediaries, though it can affect more experienced brokers as well. For new brokers, the issue is education. Sure, you may learn the basics of the industry by reading a couple of books or taking a class, but that only gives you basic information. To thrive in this industry, you need to continue your education until you master your product. This point is crucial for success, as there is no substitute for rolling up your sleeves and learning.

If you really want to be exceptional at selling factoring, you must understand the financial, operational, and legal aspects of the product. When I started in the industry, I created mock cash flow statements to help me understand factoring and get a feel for how the product would work for clients. While this process was tedious, it allowed me to develop a good understanding of how things work from the client’s perspective.

I gained understanding of the operational and legal aspects of factoring by owning a factoring company, but I had a lot of help along the way from other factors who were very generous with their time.

If you want to get a solid awareness of how factoring works, I recommend Jeff Callender’s books, which are well-regarded in the industry (you can find them here). You should also partner with reputable factoring companies, who are often happy to share information and educate their intermediaries.

Focusing on too many products at the start

Another common mistake that affects most newer intermediaries in the industry is focusing on too many products at once. This strategy can backfire and leave you with fewer deals than if you had focused on a single product.

This mistake often happens when a new broker adds products such as medical factoring and construction factoring to their portfolio. These two niche products may appear similar to conventional factoring, but, in reality, they have important differences that can be tricky to manage for new brokers.

Because of these differences, you need to spend time educating your clients, especially if they come to you with prior knowledge (and expectations) about conventional factoring. You need to point out the procedural differences and make sure that their expectations are set.

For example, medical and construction deals take longer to fund, have more documentation requirements, and have different pricing structures than conventional deals. The only way to explain those differences to a client is to fully understand the details yourself. Otherwise, the client may develop the wrong expectations, and that misunderstanding may cost you the deal – which takes me to my next point.

Not managing client expectations

As a factoring intermediary, you need to spend a fair amount of time working with your clients very carefully and managing their expectations. Most clients have an urgent need for money and often want as much money as possible, as quickly as possible, and as cheaply as possible. Meeting all these expectations can be difficult.

Remember the first cardinal rule of factoring: a deal is not considered a deal until the client is funded. The second cardinal rule is that if something can go wrong, it will go wrong – and it will happen on the day the first funding is due.

Unrealistic expectations are preventable, but they occur because the broker is not familiar with their factor’s processes. For example, some factors perform the due diligence prior to presenting a proposal. Other factors perform simple due diligence before presenting a proposal but do their in-depth work only after the proposal is accepted. Remember that, in both cases, proposals are non-binding.

Can you spot the problem in the second case? In that scenario, a prospect could accept a proposal and assume that the deal is as good as done, only to watch it unravel soon after because of an issue with the due diligence. And if you assured the prospect that the deal was “as good as done,” your reputation is at stake.

Avoiding these common mistakes is relatively simple. First, understand how your factoring partners work. Get to know their processes. Second, explain to your client those processes and what they mean. Lastly, don’t make a promise that you are not certain you can deliver.

Marco Terry Factoring companyAbout 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.

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 and on Google+

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