The Pivotal Role of Small Factors: A Q&A with Constance Fraley & Daniel Lozier
The IFA sat down with Constance Fraley, Chief of Staff, Petra Financial Technologies, and Daniel Lozier, Director of Sales & Marketing, Primary Funding, to get their take on the Small Factors Meeting in March 10-12, 2024, factoring trends and why small factors are crucial to the industry ecosystem.
Constance Fraley is the Chief of Staff of Petra Financial Technologies. She manages sales, credit, risk, underwriting, portfolio management, and daily operations. She is responsible for improving performance, increasing productivity, and growing profitability. After five years in the United States Air Force, Constance moved into the construction industry, where she spent two decades handling everything from scheduling and budgeting to managing operations. Utilizing her in-depth industry knowledge, Constance now oversees a thriving capital funding division that caters not only to construction companies but businesses of all types.
Daniel joined Primary Funding in 2013 and has held every role within the company until being named Director of Sales & Marketing in 2021. He’s actively involved in the San Diego community and oversees the sales and marketing teams.
In this ever-changing industry, how can Small Factors stay nimble and prosper?
The beautiful thing about being a Small Factor is the ability to adjust, pivot, and make decisions quickly. Some ways for Small Factors to take advantage of this competitive advantage and continue to prosper are:
Each year, spend time to do an internal review and look at internal practices/procedures and evaluate your existing portfolio. In order to be “nimble” and make decisions quickly, you must first make sure something isn’t holding you back in your current situation &/or portfolio. One defaulted deal can be a significant drain on your time, energy, capital, and available resources, so it’s important to identify potential risks early.
Ensure your capital source is stable and there is room to access additional capital if necessary. Business is happening faster and faster these days and it’s important forSmall Factors to have the ability to take advantage of opportunistic growth &/or deals. Capital constraints can halt progression for a Small Factor so you want to be sure that piece is taken care of.
Have a well-defined client profile. The ability to quickly say “Yes” or “No” to new deals is imperative for Small Factors. For deals that are a fit, Small Factors need to be able to go from a “Yes” to funding as quickly as possible.
Grow your professional network. Having access to resources can be the difference maker between a down year and a great year. Don’t be afraid to leverage your network!
Leverage technology. Artificial Intelligence (“AI”) platforms, like ChatGPT, are at the forefront of technological advancements and should be utilized by Small Factors. A few ideas to leverage these AI platforms can be:
Content for sales emails
Putting together annual business plans
Writing job descriptions
Are there specific industries or markets that Small Factors thrive in?
There are a lot of influences when evaluating specific industries for Small Factors to target. Some of those influences can be:; employee size, Factoring industry experience, geographical region, capital structure, etc. With that being said, from our experience Small Factors tend to excel in:
Temporary Staffing
Small Owner Operator Transportation
Manufacturing
Wholesaler/Distributor
Technology
What can small factors leverage to retain current customers and sustainably grow?
For most small Factors, having access to a large sales & marketing budget just isn’t in the cards. However, there are a number of free &/or inexpensive opportunities to help drive new sales and retain existing customers. Some opportunities available for small Factors are:
Relationship Building: There are two primary areas that small Factors can focus on as it relates to relationship building. Those are:
Clients: This is probably the most important relationship and one that should be prioritized when looking at activities. If done correctly, investing time in this area can lead to new business, risk mitigation, reduced administrative lift for the Small Factor, and longer client retention
Professional Network: Growing and maintaining your professional network, not only within the Factoring industry, but outside of the industry as well with related professional verticals (Bankers, CPA’s, Attorney’s, etc.), can lead to new business, advice, business resources, and so much more.
Relationship building activities can consist of coffee, lunch, or simply picking up the phone and checking in!
Testimonials: Piggy backing off the above opportunity, if you’re taking care of your clients and professional network appropriately, Small Factors should be asking for testimonials. These testimonials can be uploaded to your website and used to create credibility with new and prospective clients.
Social Media: Building a following on social media platforms, like LinkedIn and Facebook, allows Small Factors to promote their business, educate readers, demonstrate industry expertise, highlight professional accomplishments, and notify people of upcoming events for free. So long as content/post remain consistent these activities will lead to new opportunities.
Constance, given your robust background in finance, factoring and operations, what are strategies Small Factors can deploy to address financing needs of businesses?
The most successful strategy I have seen Small Factors deploy is to fully develop a product(s) you are comfortable with offering and sticking to that product. It’s easy to get caught in the cycle of creating a bespoke solution for each individual client to increase business. Bespoke solutions limit scalability, increase risk, and create burden on account executives in learning a different funding process for each individual client account or client-debtor relationship.
In your experience, Daniel, what do you see as the top trends or challenges for Small Factors in 2024?
It’s certainly an interesting time for the Factoring industry and, as with most forecasts, looking into the future is like trying to predict the weather. With that being said, I think there are a couple of items that Factors should be aware of:
Anticipated Rate Cut: Over the last 16-Months, the central bank has raised the fed funds rate by more than 5% as a response to rising inflation. While achieving a soft landing in 2024 is still up in the air, respondents appear to be gaining confidence as they are predicting a rate cut mid-2024. If so, many Factors will feel a bit of relief on margins as cost of capital reduces. Furthermore, while optimism surrounding the economy rises, I predict Banks will take a bit longer to gain lending confidence which will result in an increase in opportunities from Banks.
Bankruptcy Increase: 2023 saw an increase of 30% in bankruptcy filings across the nation. Now more than ever, Small Factors should re-enforce credit standards for debtors and clients.
Subordinations: Continuing the post-Covid trend, it’s almost certain that new originations will have an Economic Injury Disaster Loan (“EIDL”) resulting in a UCC-1 filing from the Small Business Administration (“SBA”). In order to secure a first position, Factors will need to seek subordinations from the SBA. However, it’s important that Small Factors are aware of the concession they are agreeing to, specifically on their rights to remedy, when obtaining the SBA subordinations.
Disclosures: Specifically in California, the Department of Financial Protection and Innovation (“DFPI”) implemented their APR disclosure requirements for alternative lenders & Factors. While these APR disclosures are currently only being enforced in select states (CA, NY, VA, UT…), the sentiment is that these disclosures will continue to be adopted by more states.
State Audits: As a result of the APR disclosures, there has been an uptick in the frequency, duration, questioning, and requested documentation being asked by state auditors, like the DFPI, to Factors. Unfortunately, due to the lack of understanding of the Factoring product, the result for many Factors has been a significant administrative lift to provided auditors with what is being asked, establishing new/modified operation practices and policies to comply with the state auditor’s standard, and for some Factors having to refund portions of factor fee income.
We’re coming up on the 10th Small Factors Meeting. What keeps small factors coming back year after year?
The key to success in the Small Factors Meeting stems from the collaborative culture of small factors. Our experience is that Small Factors view their industry relationships as sources of support and information versus competition. The discussions are very open and unfiltered, providing a wealth of information to support Small Factors’ success in the industry.
Is there an overall theme for the meeting? How was it selected?
The overall theme is to provide resources and information that will add value to all factoring companies servicing all industries. We work hard to be inclusive of transportation and general industry factoring. This year our discussion topics include a good variety of sales/marketing, operations, and risk. We encourage attendees to reach out and share topics they would specifically be interested in prior to the meeting.
What can you tell us about the lineup of speakers and topics they’ll dive into?
Our goal is to ensure attendees are able to discuss and collaborate on relevant topics and scenarios. With that in mind, we are limiting the lineup of speakers to those that are able to provide a high quality of content and information to the attendees. The goal is that attendees will walk away from each guest speaker with something they will be able to take home and implement within their business and it will be adding value immediately.
What are you both looking forward to the most as the moderators?
In the Small Factors Meeting we bring together individuals and guest speakers with different experiences and approaches. As moderators, we look forward to facilitating discussions between such a diverse group. Small Factors don’t always have the luxury of walking over to a co-worker’s desk and asking the simple questions of, “Have you seen this before?” or “How have you worked through this issue in the past?” This is the forum where everyone can sit at the table, ask questions, and return to their businesses with priceless ideas and approaches.