7 Common Mistakes Factoring Brokers Should Avoid
As a broker in the factoring industry, you know that business development takes a lot of time and effort. So, when you find a potential client, you want to be sure you are prepared. It will save you and your client a lot of time and help to avoid mistakes that may result in lost business.
Don’t let the excitement of landing a prospect divert you from the preparation successful factoring brokers use to develop business.
Here are 7 common mistakes factoring brokers should avoid in order to close more deals.
Not Networking Enough
Prospecting for new clients by contacting leads from call lists, internet searches or other data mining techniques is time-consuming, tedious, and has a low probability of success. Make sure you are investing enough time networking to increase your chances of locating and developing clients.
Joining professional, civic and fraternal organizations gives you the opportunity to network with CPA’s lawyers, business executives and owners. Networking can result in leads and contacts for new business prospects. It helps you to learn about a prospect so the contact goes smoothly. Contacts developed through networking are more likely to be successful.
For additional discussion of networking, please read: Tips to Generate Lead Opportunities as a Factoring Broker
Using Outdated Technology
Many new business opportunities come in the form of start-ups and early-stage companies. These business owners are often tech-savvy entrepreneurs, who conduct their business and communications on the internet and smart phones. If you want to pursue these prospects, you should have a website and a social media strategy to attract and draw entrepreneurs to your services.
Factoring transactions are now in a digital and electronic format. You need to have the necessary technology infrastructure to effectively do business with clients and factors. Make sure you have up-to-date technology for electronic transactions and communication by voice, text and email.
Not Using a Script
When you connect with a prospect don’t just wing it when you make a presentation. Based on what you know about the client, prepare and practice a script for discussions. Whether you are on a Zoom conference, Skype or a phone call, a script will help the discussion flow more smoothly and ensure that you have covered all the important points. A script will also help you to avoid digressing and making statements that are not relevant to the factoring program and may confuse or mislead the client.
Clients appreciate well-organized presentations that don’t take more time than they should. Using a script will improve communication, reduce back and forth, and avoid unnecessary emails which slow down the due diligence and underwriting process.
Not Knowing a Prospective Client Well Enough
Not knowing a client well enough can leave you open to surprises in the due diligence and underwriting process that may result in the factor declining the business. Your time is wasted unnecessarily and it may affect your relationship with the factor and the client.
Prepare a thorough client profile and make sure that you understand the industry, business and client’s customers. Review the client’s financial strength, credit history and business reputation. A little homework will help you avoid misunderstandings and delays.
Not Speaking the Lingo
Like other forms of financing, factoring has terminology that has specific meaning. Not knowing the correct factoring terminology can create misunderstandings and problems with the client and factor. For example, confusing PO financing with factoring. These two financial products are very different and yet many brokers will use the terms interchangeably. You should understand and use the same terminology the factor uses as well as avoid using lending terms that do not apply in the context of factoring.
For additional insights on factoring terminology, please read: Common Terminology Used in Factoring
Create False Expectations
Statements like “When you factor your invoices, you can literally receive cash the same day you invoice”, or telling a client their customers can be automatically credit approved for a certain credit line can give the client false expectations. Misleading statements may cause confusion and strain your relationship with the client and the factor which can ultimately be a deal killer.
Avoid misleading statements on the turnaround of transactions and the length of due diligence and underwriting. Never provide a client with a proposal; that is the factor company’s responsibility. A factor will end up needing to restructure the program you presented, which further hinders the closing of the deal.
Handing Off the Transaction at the Improper Time
Speak your piece, then be quiet. Once you have found the client a suitable factoring company for placement, it’s important you hand the transaction off to the factor at the proper time. Many times brokers will remain overly engaged with the deal and some may even continue to shop it around to other funding sources. More parties involved can mean more confusion and it creates inefficient communication. This slows down the due diligence and underwriting process which can ultimately prevent the transactions from ever closing. Follow the factor company’s directive when they tell you “We got it from here.”
Avoiding these common factoring mistakes will save you time, increase your success in developing and closing deals, as well as enhance the relationships you have with your client and the factor. Putting in the time upfront to increase your knowledge and hone your skills will return the investment many times over.