Starting your own factoring company? Here’s the second post in our four-part series of 15 top tips for startup factors. Today we discuss clients.
The types of clients a new factoring company chooses to work with has a huge impact on the factor’s success (or lack thereof). Here are four tips for new factoring companies to consider as they take on new clients:
- Be choosy. When you’re just getting started, it can be tempting to bring every new client onboard that you can find. Resist the temptation. It can backfire to have a huge number of clients that you don’t know well and can’t build a relationship with. For long-term success, you’ll want to focus on quality clients, rather than quantity. You need to be able to pick up the phone and have a conversation if there’s a question or issue.
Watch your portfolio trends. Know why a particular client is growing or shrinking. If they appear to be growing like crazy - as evidenced by the increasing number of invoices they’re submitting - do they have the assets to support it? Or if they’re shrinking, do you need to start worrying about payments coming in? Are their customers struggling or moving to other providers?
- Mold clients to your workflow, not the other way around. Clients can be demanding, but if you start doing special things for them, offering overadvances, entering their funding requests into your system by hand, you’ll run yourself ragged and have less time to spend on other clients and managing the business. Remember that you’re offering them money, so they should be willing to accommodate your processes and procedures.
- Have a grading system. Don’t allow your salespeople to pick from a basket of terms. The underwriter should set criteria for which types of clients receive which terms. You want to make sure the most favorable terms are only offered to clients with the best credit history.
If you missed the previous post in this series, it included tips about operations for new factoring companies. Next week, we discuss minimizing fraud and loss, and then we’ll finish by covering the big picture.
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