44 MAY / JUNE 2019 DIRECTORS / SENIOR MANAGMENT Team Up With a Factor To earn lifelong business customers If you are a small business banker tasked with bringing in new business, find a factor to partner with. Customer loyalty in any business is built by satisfying prospects’ strongest needs when they need it most, and an independent factor can help fill that temporary need until the prospect is bankable. Nearly every young business is starved for cash, with a high percentage unlikely to qualify for bank financing. Factoring is the purchase of the client’s accounts receivable at a discount; factors are the companies that complete factoring transactions. Factoring gets cash into the budding entrepreneur’s hands immediately upon sale, which can mean everything to the success of the business. It’s one of the oldest known forms of money lending, with records dating back 3,700 years. When I was prospecting for small commercial customers as a bank trainee in 1974, I learned an invaluable lesson about what can be gained by timely satisfaction of a prospect’s borrowing needs. I learned the lesson when calling on Frank, the friendly founder and owner of a small screw machine shop. I managed to get the appointment only because Frank was heading his golf club’s membership committee, and young commercial bankers were prime targets. On that day, though, neither of us was buying from the other. I had to politely decline joining the golf Trevor Morgan Founder & CEO Prairie Business Credit Inc. tmorgan@prairiebiz.com Prairie Business Credit Inc. is an associate member of the Indiana Bankers Association. club – though I did join three years later – because that type of bank perk wasn’t offered to newbies like me. Frank wasn’t buying from me, either. Instead he told me the story of how my bank’s best local competitor had walked into his office 20 years earlier – the day Frank opened his doors – and put together a loan package that Frank desperately needed to seize a profitable sale. Because of that, he said there was absolutely nothing my bank could offer that would get him to move, no matter how our services stacked up, or whether I joined the golf club. Frank’s experience encapsulated a universal truth about creating a competitive advantage by satisfying a critical need at the right moment. Find the referred prospects with critical cash needs and a way to satisfy them, and they’ll stay at the referring bank forever. Factors have no magic credit knowledge that enables them to make loans a bank cannot. They simply are able to lend to difficult credits by verifying every invoice they advance on and by taking absolute dominion of collections. Factoring is more expensive than bank loans, because a factor’s operating expenses are exponentially higher, due to attention paid to the client’s administrative detail. That intense monitoring also imposes good credit, billing and collection habits on the borrower. So when the performance and balance sheets of a factor’s clients pass muster with the bank’s credit standards, the
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