The Factor Guru

Tips on accounts receivable financing and business practices.

Archive for category Sales and Marketing

Perception is not always reality: factoring may be the answer

Feb 4

Posted by Gen Merritt in Sales and Marketing | Comments off

 

I have a family member who believed a common misconception that I have always been involved in a sub-prime, “loan shark” type of business: factoring. No matter how many times I attempted to discuss how factoring works and how it benefited a small business, they just would not listen. Their theory focused on, “Why can’t the company just go to a bank?” and “That is just too expensive.”

Have they looked around at the banking environment lately?

Well, recently I was discussing a transaction that was funded by a factoring company I know. It was a small business that works with government entities (i.e., state and city municipalities) that recently experienced a massive increase in growth, or had the potential too… they just needed working capital. The company did have a line of credit; however, the bank was unable to raise their current facility to the level the company needed, as the company’s historical sales and cash flow would not justify this increase. However, by factoring their receivables, the company could accept these new orders and grow their business. The perceived ‘strain’ and ‘expense’ of factoring was immediately offset by the ability to expand the business and ultimately create more profitability.

This ‘family member’ overheard the conversation and began asking questions about how it worked, the structure, the credit guidelines, and how the factoring company would be repaid if the customers of the client did not pay.

Yes, the fees are more than a traditional bank source; however, we walked through an example of the overall impact to a business that would now be able to grow from factoring its receivables. It was then, that light bulb moment, that they realized the potential gain in income and profitability by using factoring versus continuing with the business without this working capital arrangement.

Using only generalities, they finally said (in amazement), “I didn’t know that factoring could help a company like this?” Yes, I too was shocked and amazed as they say.

Hadn’t we already talked about this? Sometimes, though, real examples help explain a transaction better. Moreover, showing the value added from factoring receivables and the potential financial gain and impact on a company’s bottom line can be a revelation.

So, once again, I had to sit back and evaluate what had just transpired. Perception in this case was not the reality. It was just a distortion of what people had ‘heard’ and a misperception of factoring itself. Sometimes, factoring accounts receivable can be the answer to the growth of a small business.

Wishing you continued success. The Factor Guru.

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It’s All About the Billing… No Surprises

Oct 23

Posted by Gen Merritt in Operations, Sales and Marketing | No Comments

It seems like an easy question when you are meeting with prospective clients, “What do you do?”  They tell you and walk you through on a ‘high level’ how their business works.  They explain some of their history, how they got involved in the business, where their business is headed, what their customers are like, and sometimes much more than you ever thought of asking.  Within this information are some basics that we sometimes can gloss over, especially since they seem so fundamental: they receive an order, sell a good or perform a service, and they complete it.  What more is there to know? 

Sometimes, more than you thought possible… 

The #1 reason for delay of an initial new client funding can be attributed to not being able to structure a funding solution because the information is received late in the game. This information can include client names not being accurate in various places, including on the invoice, payment requirements being maintained including insurance needs and licenses, and more typically, the customer/debtor terms of the order directly affecting the payment of each invoice.

For invoices of any significant size, a contract, purchase order or other documentation outlining the company’s responsibilities between your prospective client and their customer is almost sure to exist.  Orders generally reflect the agreed upon price, the payment terms, what triggers billing, any insurance requirements, potential offsets or assignability, and more… Because of this, the next time you receive a complete application package and have any doubts about fully understanding the prospect’s business and billing (and I mean ‘any’ doubts), consider phoning the company again for a more in depth discussion prior to processing their application. 

Even if you are in the process of waiting for a prospect to respond with a completed application, what better reason to make that follow-up call and engage them than having them talk to you more about their business and how they operate that business. Understanding what they do can only help you, a factor, and the client, as they will not have to deal with ‘surprises’ later. Have them describe their billing processes and their customers’ payment history.  The company may even become more comfortable with you because you are taking an active interest into their business and truly how it works – you’re taking that extra step to build the relationship – you are showing them you want to understand their business and their needs.

It is always better to understand this dynamic prior to sending documents… prior to leading a company on (as they say). Why waste your time… or theirs. No surprises. That should be the motto, right?

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What’s in Your Box?

Oct 5

Posted by Gen Merritt in Books to Read, Sales and Marketing | No Comments

Imagine a box. Any type will do. It could be a cardboard box, a pink or red gift box, one wrapped in newspaper or even shiny paper. It may even have a big red bow on top. The box is yours, so picture it clearly. Only you know what is in it. The question, however, is do others know what could be in there? Could they even guess? How can you make what you do ‘stick’ with them?

Well, if they know you then they probably can guess… if they cannot, then nothing specific exist sufficiently in their mind to think of you when they have something for you… such as…

a Deal…

In work, we all have niches we provide. We have certain transactions we specialize in and others in which we choose to steer clear. You, in your job, may look at several types of industries in the clients you work with such as medical, government receivables, construction, trucking carriers and/or brokers, staffing or manufacturing. You may only prefer deals that are under or over a certain dollar size or in a set geographic area.

Do people know what you do? Do they have a good understanding? Have you explained to them enough so they could guess what’s in your box? And, almost more importantly, will they remember? Does what you do ‘stick’ with them? Or, is what they know so generic that your box could hold just about anything? What makes you any different than what everyone else does?

If not, they will probably never be able to ‘guess’ what specifically could fall into your niche, or what you may include in that very vast space where any factoring company may fall. In this, they may never know what type of transaction to send your way. Unfortunately, you would just be the same as everyone else with that same generic box. Nothing special… Nothing that stands out… Nothing memorable. The only exciting benefit you may offer may be your packaging: the big red bow, the curly ribbons, and the shiny paper… the pretty marketing-driven features.

So, how do you know? How will you know?

Are you seeing transactions that are completely out of your range, target market or pricing? Getting others to understand what you do may help.

Some marketing people give the basics of their target industry, size, pricing, and other details. They key is: will you remember? Tom Siska, with Working Capital Solutions, continues to write for The Commercial Factor, The Secured Lender, and the ABF Journal. In most of his articles, he continues to address knowing who you are and sometimes, more importantly, who you are not. I tend to agree with this.  

Successful marketing people seem to develop more effective communication tactics (not sales pitches) in helping others remember what they do (in understanding their target market). I know some talented marketers that should a deal come my way and sound even close to what they would do, then I will definitely call them. Why? Because I know what goes in their box… therefore, I know what may go around their box.  Ultimately, I know if they may be able to do the deal!

One of my favorite methods of remembering: stories. Opportunities to hear examples of deals (why they worked and why they didn’t; how they were done) are lasting. They stick. People can relate to them. Stories can help seal the deal. People remember.

After reading Made to Stick, I further believe and encourage such stories. (I also highly recommend reading this book. By the way, it is a shorter read than the 8 ½ hour book on tape — or CD as the case may be. And, yes, I have both because I have ‘issues’… as some have said). The communication styles referenced in this book may help others remember more about you and what you do.

These messages leave a lasting ‘stickiness’ factor. And, at the end of the day, if communicated correctly, I know I always remember what goes in everyone’s ‘box’ for the types of transactions they are looking to fund.

So, again, what’s in your box? How do people know? How will they remember? How will what you do ‘stick’ with them?

Wishing you success… the Factor Guru.

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Measuring Results

Sep 23

Posted by Gen Merritt in Collections, General Information, IRS Information, Sales and Marketing | No Comments

Yes, we had several questions this week on payroll tax monitoring, 8821 forms with the IRS and past due taxes, along with IRS tax liens. In all cases, we are happy to provide our experience; however, you should also consult your legal counsel or a CPA to insure you are protected. We’ll save this for another time. If you have questions in the interim, you can email us directly. (A link has been added for this form so you can use this now, if you are not already). Note this was updated in August 2008.

What I wanted to talk about in this entry was planning and measuring performance. Do you have the ability to measure productivity… performance… results? How do you know that the processes you thought you established are truly being followed? What tools and management do you have in place? (This works in any business – not just factoring).

Have you ever wondered why marketing/salespeople bring in a lot of leads but minimal results? Have you ever wondered why a collections staff can call on aging invoices all day but with limited success? Some would say it’s a numbers game in both cases. I respectfully would disagree.

Sales can be a numbers game, but wouldn’t it be better to identify who your salespeople are calling on, what they are saying, what they know about the product they are selling? Is it just the features? Or, do they know what the true benefits (and challenges) are for a prospective client? Can they outline those benefits to a prospective client to add value to any new customer? Can they breakdown a good lead from a ‘not a good fit’ lead?

Likewise, in collections, do your collectors just call to identify the status of a payment without understanding what they are calling on exactly? Do they follow up promptly? Is the reason they are calling because of an internal issue in either your company or your client’s company?

In both cases, you will notice, ‘understanding’ is required and needed to produce efficiency in efforts and to maximize the value of your organization.

Although I have lots of ideas about both — I more or less want to pose the question to readers for them to think about their operation, their company, and ultimately their success.

Wishing you success… the Factor Guru.

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