The Factor Guru

Tips on accounts receivable financing and business practices.

Posts Tagged gen merritt

Factoring is Like Gambling: Part I

May 5

Posted by Gen Merritt in General Information | No Comments

4d2eb19fabab5450-32Who said factoring was like gambling? Lately, now that I have been playing poker, I wanted to examine this concept… or misperception. Many people seem to say this ‘gambling’ comment flippantly only because of a perception that they believe exist. However, sometimes, you have to delve deeper… to find the truth. After all, perception is reality… right?

No. Not always, if you choose to look hard enough. So, let’s go with my basic assumption of Texas Hold ‘Em. After all, I am from Texas.  

The first rule: the one with the most bank has the best chance of winning. Do you have enough capital to play the game for the long run? Factoring is not a game you get in with limited capital. Don’t take it lightly. Real money is at stake. You have to have sufficient funds to play the game. One loss cannot dictate your endurance in running a finance company. Putting “all your eggs in one basket” may help you grow; however, can you survive the loss? If you experience losses, are you still in the game? And, will a large fraud break your bank?

If so, factoring is not the business for you… when you are new to the game. This mainly applies to those who do not do their homework, who do not understand that vigilance in underwriting and monitoring deals remains a key aspect to the factoring business. No one can teach you how to start a factoring company without also explaining the risks. It’s about your people, processes, systems… and more. Just think, all that is before you start.

You also have to understand the risks, how to mitigate those risks and how to monitor those risks over time. When you set out to start your factoring business, capital is essential… But, keeping your capital is critical. It’s not just about putting the money out there; it’s really about getting the money back!  Funny that in poker, it’s not about the risks, it’s really about getting your return (and your money back). Hmmm…

The next rule: Do you know the cards you have been dealt? Are you really looking at what’s in your hand, or are you just chasing the cards you think you have? For example, what do you offer relating to your corporate ‘tiers’ such as People, Processes, and Systems? These tiers are your strengths. Know your tiers. Know your strengths. Play to those cards. Within this,

First, know your people. Can the personnel you have handle the type of clients you are seeking? Can they handle the type of account management required for those specific accounts? Do those personnel truly understand the dynamics of various industries in which you may want to branch out into to diversity your portfolio?

Second, know your processes. Setting up procedures within your company can be essential. Think about those unique situations that require governmental regulations (i.e., Assignment of Claims, CAGE codes, etc), monitoring transportation carrier payments, or even subcontractor payments (i.e., lien releases, etc.). If the processes you have in place do not include this type of account management, then those processes are insufficient to effectively manage those types of client accounts.  

Finally, know your systems. Do you have the proper software to effectively monitor certain types of accounts? This also may include transportation, construction, or other types of processes and reporting that are being done manually within your company. Technology options exist that help monitor certain industries and assist in improving your systems to better manage your client accounts effectively.  

If you don’t know these basic tiers about your business as a factor, then how can you know what you can do? How do you even know how to read your cards? Again, if you don’t understand these fundamentals of your factoring business, you will experience challenges in managing your portfolio, let alone expanding or diversifying. Know how to read the cards you have been dealt.

With all of that said, I’ll save the next rules for another blog. But, good luck! Remember, know your capital. Know your cards.

Wishing you success in your game. The Factor Guru.

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Trade Show Tips

Apr 12

Posted by Gen Merritt in General Information | Comments off

It’s that time of year when many factors, ABLs, companies and other businesses are exhibiting for trade shows and conferences. Therefore, I thought I would focus on ‘business tips’ instead of solely factoring. This blog will be basic trade show tips 101 for most; however, since the questions still come up, I thought I would just add it to the list of weblogs…

First, Keep It Simple. The job of an exhibit is to gain exposure, build credibility and find new prospects. Use your exhibit to provide a quick glimpse of what your company offers. A trade show display or exhibit is a serious representation of your company’s brands and business philosophy. Here are some things to think about to maximize the value of your investment:

  • Give promotional items… they are meant to be given and not taken.
  • Create an atmosphere that generates leads. Limited space does not mean limited selling potential.
  • Record your leads. Create a system to remember what type of lead you have, who you talked to, etc.
  • Realize when people stop, they want to talk to you.
  • Remember you are always selling… before, during and after exhibit hours.

Next, remember to staff your booth… don’t wait for prospects to stop at your booth. Be proactive. This also means: don’t stand behind the table–in fact, don’t put a table in front of your booth. Stand out in the aisle and greet people with questions and eye contact. Even though most shows do provide seating for exhibitors, always remain standing. This way you appear more approachable. Think about it this way… do you want to approach someone who is sitting down with their arms folded?

Now, here are the things you DO NOT want to do: It’s not the words you say, but the non-verbal communication that you do that leaves the largest impact and impression upon visitors. What are the ten pitfalls to avoid?

1. Don’t sit, read, smoke, eat, drink or chew gum in the booth.

2. Don’t use the cell phone in the booth.

3. Don’t gossip or badmouth competitors.

4. Don’t leave the booth unattended or leave without informing colleagues.

5. Don’t be late for booth duty.

6. Don’t use negative body language. Instead, smile and look at person when speaking. Use affirmative comments. Don’t close off conversation by crossing your arms. Remember, open hands promote honesty.

7. Don’t let the booth get cluttered, untidy and unorganized.

8. Don’t wear your badge on the left hand side. Instead, wear your badge on the right hand side so it can be seen by your visitor when shaking hands.

9. Don’t be unprofessional.

10. Don’t try to sell. Make appointments to call back or visit, and follow up immediately after the show.

So, what is the best way to maximize the leads you get?

  • Use pre-show promotions and invitations to your exhibit one to two weeks prior to the show. Studies show promotions can boost your lead counts by 33%.
  • Train booth staff to reiterate the benefits expressed in the pre-show promotion.
  • Engage in a 30-second dialogue of open-ended questions.
  • Determine what to present to this prospect within two minutes.
  • Present product(s) that benefit the prospect in a ten-minute timeframe.
  • In a minute’s time, complete your lead card or agree on the next step and move on.

Most importantly, make your leads matter! Have your booth staff fill out any lead generation card rather than the prospect or customer. This way you are sure to get all of the pertinent information as well as make a personal connection with that lead. It also gives the staff member a better opportunity to find out the exact needs of the prospect. 90% of all sales literature distributed at an event is discarded at the trade show, either by sales people or attendees themselves.

The success of a trade show is often measured by the number of leads created (especially qualified leads). However, trade show staff often forgets to get the visitor’s contact info or to indicate what products or services those visitors truly may or may not have an interest in. As a result you end up with either very few leads or unqualified leads that the sales team discards later.

Start Following Up On Leads BEFORE The Show Starts! So, before you leave the show, write (and, if not personalized, even print) the follow-up letter and prepare the follow-up packets. Be sure to have a stockpile of any brochures you may need, and if you’re going to promise to send anything after the show, be sure to have it already back in the office. Time is not on your side. Be prompt.

Good luck at your show! Wishing you success. The Factor Guru.

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It’s All Bananas a guest blog by Darla Auchinachie

Jan 20

Posted by Darla in General Information | Comments off

You’re not supposed to get ‘weepy eyed’ over golf… or, at least I’m not. I finally watched The Greatest Game Ever Played. Do you know what I thought (after crying… which I don’t do so erase it from your memory)? Passion, persistence, and dedication. Those are the words I would use to describe how I feel about factoring, our industry, what we do (as factors) to help others: industry peers and clients alike. You have to believe in what you are doing. Period.

It also brought about something else: help others, acknowledge those that are learning and work to help them succeed. Several people, industry veterans as I would call them, always went above and beyond, out of their way, and more to help me learn more. I was lucky, I guess.

For this weblog posting, a friend of mine and one of my mentors, Darla Auchinachie, a 17-year veteran in the factoring industry and a long time speaker, board member and advisor for the IFA, agreed to write an article. To maintain this trend of helping others in the industry and showing her continued dedication to the industry, she has shared an article with us that rings true… for factors, clients and others. Pay attention. I always did.

This is an open letter to every factoring company executive. 

                Unless you’ve been stranded on an island the past year, you probably haven’t been able to escape the news concerning the biggest economic crisis to hit since most of us embarked in the career of factoring.  As we enter the new year the media claims we just can’t wait to get this behind us.  But wait, the factoring community simply can’t go along as business as usual expecting to avoid being impacted by the crisis merely because a new year is upon us. 

                It’s time to take a serious look in house and be prepared to engage in some strategic planning to take your company through these incredibly challenging times.  I spoke to a trusted friend recently, his comments keep ringing through my ears.  He says, “Its bananas out here”.  Yep, that sums the economic crisis up, especially to the all the factoring companies, bananas just bananas. 

                The economy is shrinking, but wait it’s the perfect storm for us – banks will get out of our space, we’ll be flooded with opportunities is one point of view.  Another says yeah, but credit is our biggest concern right now, and it should be retailers, the auto industry, the oil companies in our account debtor base, the bankruptcies are sure to start stacking up come the first few months of the year.  Yet others are concerned for their own liquidity and access to capital. 

                Bananas, heck we have a whole fruit salad. 

                I call on every factoring company to consider taking action on a few items which will see them through the murky times ahead.  Look, no one knows what’s going to happen; we truly are in un-chartered territory, most fear to make predictions, some believe that we will be on our way to recovery by the end of 2009, and yet others are planning how to best benefit through it all. 

                How can you benefit when you can’t even be sure which way the economy will turn or how long this recession will last?  Well, you can’t control the future but you can be informed and prepared, lest you are blindsided by any number of salvos which will surely come your way. 

                They are saying that we are entering into a period of economic Darwinism.  That is to say, only the strong are going to survive.  For example, Wal-Mart will no doubt end up stronger because of the smaller retailers who will fail due to the downturn of the economy.  Here are five steps a factoring company can undertake to make sure they live to factor another day.

#1

                Re-underwrite every client in your portfolio.

                Yes, now is the time to know what you have, the good, the bad and the ugly.  Trust me; every portfolio has some ugly in it.  There is no better time than now.  Sure, most factoring company’s resources are already stretched beyond the limits due to the influx of new business, but if you don’t stop to take a look at what you already have, you will be in for some trouble.

                While the economy had been growing by leaps and bounds and credit had been so readily available, every factor benefited; we took on clients whose risk profile was higher than we would like to admit.  We cannot bury our head in the sand anymore.  You have to know what portion of your portfolio is performing and which portion will become plagued by the recession.

                If you do not have current financial information on your clients, now is the time to request it.  If you don’t have a recent UCC search, why not run a new one?  When was the last time you engaged in a background check on existing clients?  It’s time to look beyond historical dilution and trends, instead it’s time to take a reading on the client’s overall financial health as that is the indicator which will foretell their ability to survive. 

#2

                Re-structure Relationships

                When you find those clients most negatively impacted or the clients whose financial risk profile has changed, you must seriously consider altering the structure of that relationship.  For example, you may have taken a secured position on a piece of commercial real estate as secondary collateral to support a factoring relationship whose risk profile was not in line with your traditional limits.  What is the value of that real estate now?  What is the financial health of the client now? 

                If revenues are down, how is that affecting the business?  What can you really do when you are already in a relationship?  Make sure you are utilizing every collateral monitoring and availability tool in the book.  Don’t let invoices age; don’t take on unnecessary credit risk.  Counsel your clients on being very careful about extending credit terms to marginal customers.  Start building additional reserves if necessary.

                Reduce your exposure whenever possible.  Make sure your client’s maintain some skin in the game.  Consumers are walking away from the value in their homes because they just can’t make ends meet.  What decisions will your client have to make with their business?  How does that impact your existing A/R?

#3

                Get your house in order and have a contingency plan.

                Since we don’t know what surprises are on the horizon for the next 12 months, it might also be a good idea to keep your books and records in manageable order.  Whether you have $500,000 of your own funds employed or you work for a company who has $200 million employed, there is a very real possibility in 2009 that a factoring company’s access to additional capital will be slim to none.

                Be prepared for an audit either from your capital provider(s) or from which you are seeking capital.  The better your files are, the better your audit results will be.  It doesn’t hurt to triple check that your documentation is in order, proper names, trade names, and all that.  By the way, when was the last time you checked to see if a client was still operating under good standing status in their state, update everything in your files!

                Factoring companies may find it hard to raise capital in the form of subordinated debt; others may find that their institutional funding has dried up.  Worse still, your lender could exit the business abruptly.  Have you taken the time to review your portfolio and operations to make sure it remains attractive to capital providers?

                Seek out assistance within the industry or outside of the industry, but do something and have a plan in place should something like this occur.  If you make it past 2009 and the economy heads upwards you may breath a sigh of relief – until then, how prepared are you?

#4

                Keep employees educated and motivated.

                Factoring is such a unique business, there is a human element deeply engrained in this profession.  Make sure the folks on the ground know how to sniff out problems.  Account Executives shouldn’t let a week go by without having some contact with the principals of your clients.

                Stay involved in providing continuing education to every member of your team.  Let them know that the playing field has changed out there.  It’s not all about proper verification and notification anymore.  Your team should be looking out for different kinds of stresses such as signs of employee theft as well as pre-billing, over billing, and the like. 

#5

                Don’t be afraid to take action. 

                Sometimes, as a factor we are faced with making unpopular choices, especially when it comes to calling a client in default and entering into a realization phase.  Now is not the time to use hope as means to operate, it is the time to deal with facts.  Clients who do not have the ability to cash flow even with the factor’s funding may simply be too big a risk to continue servicing. 

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