Why Use an Invoice Factoring Broker?
Businesses looking for a suitable invoice finance company can obviously try accessing lenders directly via a telephone directory or through a simple internet search. Alternatively they could look for recommendations from accountants, bank managers or business suppliers.
For businesses who are the identical ‘blue print’ of what the invoice factoring lenders are looking for this can work and the business will be able to source a facility. The questions could be posed, is it the right facility and will it do what the business is expecting?
The problem is that most invoice factoring companies are sales focussed and as such will claim to have the best suited solution and be the most suitable provider. On top of this there are so many variables for a business to consider which can make the decision of choosing a provider very confusing.
In essence, by using a broker it should make life easier. A good reputable broker will have relationships with most if not all lenders in the market. They should have a good idea of the capabilities and criteria of each of these lenders and as such can decide which lenders are best to approach. This will save you time as you won’t be approaching lenders who are not interested based on the size, sector or geography of your business.
A good broker will always start by gaining an understanding of your business. After all, if they don’t understand what you do how can they know which invoice factoring companies will want to help you? They should also understand what exactly you are looking for – in an ideal world what is it that you want? From there they should be able to establish what product will best meet your needs and which lenders are best placed to provide it to you.
By collating the required information and submitting a full and honest report about your business and requirements a broker can quickly establish which lenders have an appetite to assist. If required they can also establish indicative terms. It should be said however, that indicative terms are exactly that until any lender has conducted a meeting and potentially a survey of your business. Only then can they make a credit backed offer where terms can be fully relied upon.
By using a broker to communicate with several lenders prior to meeting them it should mean that only lenders with a genuine appetite to help you will be introduced. This should save you both time and effort.
It is important to remember that headline rates can be misleading and as such a reputable broker should be able to clarify the total costs involved, the amount of cash that can be expected to be generated and of course the obligations of the directors in terms of conduct and security requirements.
The role of a broker should be to provide you with options and to explain those options to you both in terms of benefits, costs and risks. From there you should be able to make an informed decision as to which option is best for your business.
By using a reputable broker you should achieve saving in time and effort, you should achieve savings by sourcing a competitive facility and you should fully understand what you are entering into and the associated risks.
So what should you be looking for when choosing a broker?
Industry experience is obviously key and that means the industry experience of the person who is helping you rather than the person who founded the business. When dealing with some of the larger brokers you could be just dealing with a telesales person who will simply forward your name and number to several lenders in the hope that one of them could help you. Ideally you want to be speaking with a senior person who has worked within the industry and understand the market at large.
Independence is also a major factor. Some so called brokers are nothing more than agents or ‘packagers’ for a particular lender. They will always offer this lender first refusal on any enquiry they receive. Typically for this they will receive increased commissions. A reputable broker will use the whole market to your advantage. They will look at the market to source you the most suitable and competitive invoice factoring facility from the most suitable invoice factoring company.
A good understanding of your business and requirements is also important. He they dealt with similar businesses? Do they understand the challenges you are facing? If they do not give you comfort then it may be best to move on to another broker who can give you confidence.
You should be testing the broker’s knowledge and asking questions. Explain what it is that you are looking for and what you want to achieve. A knowledgeable broker will be able to explain what facilities could be sourced for you and how they will meet your needs.
If you are unsure ask to speak to an existing client who operates in a similar sector to yourself and find out what value the broker added to the process.
Where can you find a broker?
In a similar way to finding a lender you could seek recommendations, look in a telephone directory or do a search on the internet. While invoice finance brokers are not regulated in the same way as say an IFA there are organisations that look to promote the industry at large. The National Association of Commercial Finance Brokers (NACFB) publishes a list of members on their website that can be searched for by postcode.
