Challenges, Opportunities and Advice for a BDO in the Factoring Industry
Written By: David Phillips, Senior Vice President, Advantage Business Capital
As a kid, we didn’t own a video game console. However, for two glorious weeks every summer we’d head to Blockbuster and rent a Super Nintendo. Pausing occasionally to eat and sleep, my brothers and I played video games non-stop. By far, my favorite game was a Western run-and-gun called Sunset Riders. The main characters are bounty hunters. At each level, they’d rid towns of outlaws, bring peace to the wild west, and work their way to the boss at the end of the level to claim the big bounty.
Similarly, a Business Development Officer (BDO) in the factoring space must successfully navigate a series of increasingly difficult levels. If you’re new to sales in our industry, buckle in. You’re going to fail plenty, but here are some tips and suggestions based on my own experience of eight years of guns blazing.
CHALLENGES
Level One: Generating the deal flow volume you’ll need to be successful is a major challenge. Factoring is a niche product. As a result, most factoring BDOs (myself included) don’t prospect directly to operating companies but instead work by referral. To build a referral network, you’ll want to build bridges with folks who are regularly speaking with owners who might need a non-bank working capital solution. These referral partners will be some combination of bankers, brokers, fractional CFOs, CPAs, turnaround advisors, private equity, and other lenders. A good banker might only see one or two factoring opportunities a year. Therefore, your job is to stay top of mind and be viewed as trustworthy with as many referral partners as possible.
A quick caution. It’s tempting as a young BDO, desperate for deal flow volume, to sacrifice referral source relationship quality in favor of referral source volume. Falling into this trap and operating with a transactional intent will eventually catch up with you. At the end of the day, a BDO’s greatest asset is his/her relationships with their referral sources. Care for it accordingly.
Level Two: With clarity on with whom you need to build relationships, the next step is to execute and strengthen your network. When I started in the industry, I averaged 15 to 20 one-on-ones (coffee, lunch, happy hour, bank presentation, etc.) for the better part of six months. With no deals to work - what else was I going to do? As you’re executing this step, I’d strongly suggest face-to-face meetings. Sparingly schedule phone or video calls. In these meetings, the fundamentals are important: be on time, be prepared with your elevator pitch with examples, and always have a question or two ready (a failsafe for a banker is “How did you get into banking?”). Lastly, put the power of reciprocity to work and always pick up the tab.
Level Three: Finding a doable deal is a major challenge! Our business is a needle in the haystack business. In my experience, it takes diligence with 15 to 20 opportunities to find one that works. A top skill of an elite BDO is moving efficiently through financial packages often with incomplete information. Ask yourself: Does the story make sense? How strong is the deal in terms of the three Cs: collateral, business credit, and founder character? Quick kills are great for efficiency, but don’t forget to respectfully communicate the reason for the decline with the business owner and close the loop by providing your referral source an update.
Level Four: You must have the pattern recognition for when to slow down and thoughtfully work a deal that has high potential. This leads to selling externally. Three sales tips especially if you’re just starting out. First, desperation stinks like a skunk. Be calm, competent, organized and attentive. The deals that are meant to close will close. Next, surprises and last minute changes kill deals. With the prospect, be clear. With your team (see step five), pre-flight deals to ensure structure and pricing work prior to proposal. Lastly when negotiating, have courage in 30 second increments. I could write an entire article on this last point.
Level Five: With a deal signed up, now the harder sale begins: selling INTERNALLY. For better or for worse, senior management likely will be cautious and skeptical. There are a few reasons for this. First, they have much more pattern recognition than you and should have some valid questions or concerns. However, think about the incentives. Most all sales folks are compensated off the top (gross income) versus senior management who are compensated off the bottom (net income). While both parties are motivated to book deals, senior management is highly motivated to slow things down to ensure money won’t be lost. Sales folks also lose credibility with credit and operations by pushing hard on weak deals. Be careful. This eats away at your internal credibility. In my experience, the antidote to these challenges is to learn credit and operations, genuinely care about booking clean deals, and doing your part to contribute to a company culture of teamwork.
These five challenges NEVER GO AWAY. The week over week challenge and opportunity of the BDO is to continually improve in these areas. It works if you work it.
ADVICE
A few pieces of advice as you begin your career:
If you’re new to the industry, an ideal initial BDO role is to provide leverage to someone more senior to you who has deal flow. You MUST build out your own referral network, but if you gain and maintain the trust of your boss, they will pass you deals to work.
If you can, get into the office. When I started in this industry, I learned a great deal walking down the hall to visit with our head of factoring or chief credit officer. See levels three and five regarding the value of quick kills and learning credit and operations. If you’re already remote or distributed, then video or phone call regularly with colleagues. Resist the urge to email.
Shift how you think about mentors. The prevailing view on mentorship is a formal scheduled one-on-one relationship. I’d suggest you also think about mentors as your network of more experienced men and women with whom you have genuine relationships. Saying this another way, mentors can be arrows in a quiver versus a single sniper rifle. This shift was a game changer for me. Touch base with these folks every so often with no objective besides building a relationship. With a relationship in place, you can call on them when you need specific advice.
Up next, I’m stealing from Charlie Munger: don’t sell a product you wouldn’t buy and don’t work for someone you don’t respect or admire.
Lastly, three keys to remember. Always be learning. When I got started, I explained to prospects that each client has their own lockbox. New to the space, I couldn’t imagine how else we’d stay organized! Thankfully, I soon learned otherwise. Always be improving. Losing deals is painful; never make the same mistake twice. Always be adapting. Over the years, I’ve borrowed a dozen or so smart tactics and techniques from industry peers.
OPPORTUNITIES
If you’ve successfully mastered the five levels for an extended period, CONGRATS!! Your success and your firm’s success will be tied to your client’s success. As a result, if you can consistently find clients and help them get from their point A to point B, a BDO will be financially well compensated. However, beyond financial success, let me share three intrinsic benefits I’ve found to be just as rewarding.
Firstly, you’ll have the opportunity to provide an informed perspective to business owners on their options and be an expert in the non-bank or near bank ecosystem of lenders and service providers. I regularly explain to entrepreneurs what is or isn’t possible based on their unique situation, helping them find a path to success.
Secondly, meaningful relationships with industry colleagues and referral partners are rewarding. If you’re good at this and do it long enough, on a regular basis you’ll interact with men and women whose company you genuinely enjoy.
Lastly and most importantly for me, with the right intention, the work we do can be quite honorable. I believe the American dream isn’t rags to riches, it’s rags to respectability. Clients utilize factoring for many reasons, but many of my clients have bet on themselves and need capital to help them achieve their goals. Nine out of ten times, folks are working hard so their loved ones can have more opportunities than they’ve had. Over eight years, a dozen or so times we’ve sprinted at a funding deadline to keep paychecks from bouncing for hundreds of families. It brings me a great deal of joy knowing a kid’s birthday party is taking place because I (and we) stepped up when it counted. This is my why.
A WORD OF CAUTION
The Arcade games and video games kids play are great because the rules are so simple. Things are either black or white. Playing Sunset Riders as a ten year old, all that mattered was if I, the good guy, made it through the levels, beat all the bad guys, and won the game. However, as a BDO in the factoring industry, we’re daily met with decisions in the gray that impact human beings.
For example, it can be a real temptation in our work to take advantage of less sophisticated business owners who are sometimes between a rock and a hard place. My advice? Wrestle with this reality. When I was getting started, it helped me to talk to folks in the industry that I respected about this. At least once a year, I believe every IFA member should review the IFA’s code of ethics and perform an internal audit.
Reason being, at the end of your career, you’ll have to look yourself in the mirror and answer for yourself a few questions:
“Was I a good person?”
“What friends have I made and why?”
“Who have I helped?”
“Who have I hurt?”
The best advice I can give is to ask yourself these questions while you’re playing the game and not at the “sunset” of your career. See what I did there?! Happy hunting and keep in touch.
ABOUT THE AUTHOR
David Phillips is the SVP at Advantage Business Capital where he is responsible for originations as well as marketing for both Advantage and their sister company, Far West Capital. Far West & Advantage are owned by Central Bank of Houston, Texas. Central Bank is of the oldest independent banks in Texas and has been in the factoring industry for more than 40 years.
Since 2022, David has been a board member of TMA Central Texas. In 2023, David was recognized as one of eight SFNet 40 Under 40 award winners in the category of business development. He was also featured NEXGEN podcast to talk about the sales process.
David is a graduate of Texas A&M University where he studied Finance & History and was just fast enough to be a member of the track & field team. David also holds an MBA from the Acton School of Business. Lastly, David is a proud Texan & a more proud parent, with his wife Kate, of three young children.
The views expressed in the Commercial Factor website are those of the authors and do not necessarily represent the views of, and should not be attributed to, the International Factoring Association.
