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I believe the first step in this process is to develop, define
and communicate clearly and repeatedly to all of your
partners, employees and cash flow funding clients what your
operating philosophy is. Do you have one? If so, can you and
all of your employees articulate it, if asked?
As a commercial factor, our firm has adopted a written
operating philosophy, along with the previously presented
Vision Statement and Cornerstone Positions. Simply stated, we
are seeking a business relationship, not a financial
transaction. This longer term perspective forces us, when
seeking a new working capital client relationship to ask an
important question: Is this a business financial factoring
client that we want to serve, not just today, or this week, or
this month, but for the long term foreseeable future? If you
can not honestly answer this question a resounding “Yes”, then
what is the reason for entering into an Agreement with the
prospect?
There was a time when our approach was not this focused. In
retrospect, we added some invoice discounting clients to
simply meet a short term need. This approach, while successful
in the short term, is actually financially unsound. Any
service provider that promotes a “churn and burn” strategy is
myopic.
This change in focus was painful for our firm in attracting
invoice factoring clients. When a longer term, very selective
approach was first embraced and implemented, it meant that
some accounts receivable factoring clients that we had at the
time had to be weeded out. It also meant that the previous
marketing tact [low hanging fruit, quantity not quality] had
to be abandoned. This change in thinking caused short term
profitability to suffer.
However, now with about 4 years of successful implementation
of a quality, not quantity marketing approach in acquiring
factoring clients, the rewards have been beyond our
expectations. The overall size and quality of our business
financial services portfolio has never been better or larger.
The frequency of credit losses within our portfolio and the
occurrence of fraud have never been lower. The key question
is: what is different, now vs. then?
Quality, not Quantity is the Key
As a factoring company, the key to our success has been to
focus and stick with a strategy of quality, not quantity
clients. This means saying “no” to about 95% of the prospects
that we analyze as potential clients who wish to factor their
accounts receivable. This means not giving in to the constant
temptation of the larger, marginal deal that looks too good to
be true. This means not cutting a corner in the Due Diligence
process, or forcing a square peg in a round hole. This means
that once a decision is made philosophically to not fund
receivables in certain industry segments [construction for
example], to stick by the decision.
I recognize and admit that this approach may not work for your
invoice factoring firm, for a myriad of reasons. I can only
tell you that this 360 degree shift has worked for us.
Today, unlike the past, we use a series of written criteria to
quickly and cost effectively screen out potential accounts
receivables funding clients. The key words here are “quickly”
and “cost effectively”. With our approach, we are able to
either commit to a transaction, or pass within the same
business day after receipt of our completed 2 page Application
from the prospect. I believe we owe the future client or
prospect that we are not interested in funding receivables,
the courtesy of a written response quickly, regardless of
acceptance or decline.
In the event that we move forward with a proposal to factor a
clients invoices, our prompt and professional response serves
as the first opportunity for the new client to assess our
performance. For the invoice finance prospect that we are not
interested in serving, this prompt response allows them to
seek out other sources of working capital quickly. This is how
I would want to be treated, if I put myself in their shoes.
More than once I have heard that many in our invoice factoring
industry do not embrace this approach, and unfortunately there
are some firms that use time as a tool to essentially force a
client to sign up for funding. This approach of using time as
a cash flow hammer is unacceptable and dishonorable, in my
opinion. To have to force a client to use our business
financial factoring services does not promote a partnership
approach or work to ensure a long term relationship will
occur. If anything, it leaves a bad taste in the mouth of the
client at the very outset of a relationship. |
In
the prior series of these Articles, I presented several very
important ideas on how to seek and retain invoice factoring
clients on a long term basis. I discussed our Operational
Philosophy, [quality, not quantity]; the need to include the
concept of Integrity in your Due Diligence process; the need
for you to establish a written set of Due Diligence criteria,
and to ask a simple but very important question about each of
your business finance clients/prospects: Do you really know
who they are?