Commercial Factor Q&A: Facing New Challenges in the Operations World

No company, whether in factoring or any other industry, can survive without an effective operations department. Leslye Campos of ENGS Commercial Capital and Melissa Free of Triumph Business Capital, who will conduct a panel on operations at the IFA’s Annual Conference, share insights on the inner workings of this important business function and how the COVID-19 pandemic has changed the approach to operations.

What are the essential functions of the operations department and how do they impact other areas of a factoring business?

Leslye Campos: The operations department is the heart of any business. While factors are here to help their clients grow, more than client service is needed from the operational team. The operations department has a set of “internal clients” that are just as important and vital to the success of any business. It is culture of the organization, the systems that keep funding moving and the internal success stories that paint the real picture of accomplishments in our industry.  The quality of work-life balance is one of the most important factors in having a successful organization, which in turn becomes the glue that holds all the different departments together.

Melissa Free: There are a few essential functions in operations. The first is to provide the client value as their financial partner and to earn and retain their partnership. This impacts the entire business. You can’t grow the company if you can’t maintain relationships. The second function is risk management. Be diligent in the review of your collateral and the execution of funding the client. For Triumph, this impacts our stakeholders, audit and compliance. In addition, it reduces collection efforts and assures payment of the invoices purchased. The third function is ongoing awareness. Be sure you are validating who you are talking to and who is requesting information or changes to their account. There are lots of hackers and fraudsters out there and it’s our responsibility to protect the client and our company. Again, this impacts the entire business and the client, and sometimes our debtors.

How do you think operations functions differ in factoring than in other industries, whether they be other forms of specialty finance or sectors outside of the financial services world altogether?

Campos: It is hands-on and personal. One of the greatest feelings is to see how factoring helps our clients grow. Having personally experienced the benefits of factoring as a former client has given me a unique perspective and opportunity to share my own experience with our staff and put a face and real feelings to what we do daily. Factoring gives us the opportunity to be personable, fully integrated, and to build relationships unlike most traditional financial institutions.

Free: Factoring offers flexibility. We don’t have annual audits, financial covenants, unused line fees and, in most cases, more availability. Additionally, many factors act as back-office support with credit services, invoice creation, presentment and collections and cash posting.

How has the operations side of the factoring industry changed in the last two years since the start of the COVID-19 pandemic?

Campos: The last couple of years have been very difficult for everyone on a personal and professional level. At most factors, the operations department is “in-house” working together to get the invoices in the system, doing verifications, making collections calls and credit decisions and getting the clients funded while the business development officers work remotely within their territories. However, with the pandemic, things had to change very quickly. Not only did we have to be concerned with our own health, but also the health and well-being of our staff, who are our No. 1 priority. Working remote was almost unheard of if you were in operations.  Everyone had to scramble to ensure that the team had the necessary tools to execute their duties as seamlessly as possible to meet our clients’ needs. Just like that, we became part of a new digital movement we didn’t even see coming.  

Free: How we manage our clients really hasn’t changed, but the dynamic of operations took a quick shift as the country shut down. We had to quickly adapt to managing employees in a remote environment and maintain productivity while continuing to maintain the same level of customer service and keeping clients funded. We also had to create new processes that previously involved in-person client interactions and increase the reliability of technology-driven processes.

As we slowly emerge from the economic ramifications of the pandemic, what will be the key to effective portfolio management in the next few months and years?

Campos: Communication. With programs like Teams, Skype and others we have been able to have frequent meetings to discuss important portfolio issues with the team. We are also able to have “face-to-face” meetings with our clients more frequently without having the extra travel expense. Shared workflow programs and documents also help when working remote to keep everyone informed and collaborating in real time.  On an industry level, conferences like the IFA Annual Conference need to continue to happen, and we must not allow restrictions from deterring participation. We should adapt and move forward to continue to share and enrich our industry with new platforms, technology and innovative ideas. We must not forget how important our industry is to society and the growth of our economy and do whatever it takes to always be the solution for our clients’ sake.

Free: Managing the potential of increased fraud as the level of desperation rises due to economic inflation. You also need to make sure you have capable key team members who are vigilant in monitoring portfolio trends as the market shifts in reference to supply and demand.

Similarly, how are you effectively managing risk in the current environment?

Campos: The pandemic forced us to put our disaster recovery programs to the test and develop creative ideas to make remote work as seamless as possible in a short period of time. We have implemented new programs, processes and procedures to ensure we continue with daily functions, whether in the office or working remotely. We are more alert given the current financial and global circumstances. Verifications, pre and post, are key to minimize risk and have been essential to our success. Even though as factors we may have some bounded flexibility, we have needed to tighten our reins a bit more. We remind our team that we are not only looking out for our best interest, but also that of our clients. They will ask, push and want it all; however, they are consumed by their current situation and sometimes cannot see past it.  Having a strong factoring team behind them will help them get through tough times and ultimately flourish and they will thank you for it.

Free: Maintaining a vigilant eye of the current portfolio exposures and training team members to recognize and take action quickly as volumes trends increase or decrease. We engaged a third-party company to get more eyes on our collateral and verifications. The operations team is responsible for monthly portfolio reviews and reporting to management where actions need to occur. These reviews include our credit, underwriting and collection team members.

Dramatic changes in the labor market and in how people work have created a pretty different workplace than we had just a few years ago. How can factoring companies ensure they are still providing the right mentorship and training for employees in this environment?

Campos: Working remotely is now in some cases the norm. I struggle with the idea of the department being scattered while trying to keep the culture alive and strong. Even though technology makes it possible to have online meetings and calls, there is something to be said about face-to-face conversations, roundtable discussions and feeling a sense of belonging vs. sitting in a room at home alone day in and day out. 

Employees had a taste of working in the comfort of their own home in “comfy clothes” with fewer out of pocket expenses, and in some cases, there is no going back. We are making sure that if we must work remotely, we make time for at least one team meeting a week. A meeting where we can see each other and come together to catch up on projects and ideas, answer questions and plan.

We discovered that growth and training were not as bad as we thought. We have been able to have more one-on-one training sessions by sharing screens and documents and making more of an effort to be always there for each one of our team members. It must be intentional and sometimes we must prioritize according to the needs of the team and not of management to ensure continued growth and success. 

For the sake of our industry, I do hope we go back to the good old days of congregating in the break rooms, having water cooler conversations and having healthy discussions on how we can improve our industry, not to mention how it will improve our well-being.

Free: Being creative comes to mind. We have decided to bring our team members back into the office to focus on culture and team member development. We strive to keep team members engaged and empower them to participate in the growth of the organization. Each year we send a group of team members to the IFA conferences. We attend webinars and offer side-by-side training in other departments. We allow our team members to be part of projects to have exposure to management.

What is your outlook for the factoring industry through the rest of 2022 and into 2023?

Campos: I believe the best is yet to come. There is a new generation of factors out there with great innovative ideas who are working very hard to develop tools that will help with our growth.  A renaissance is taking place as younger generation visionaries take the reins. As I’ve matured in my career, I’ve realized what an important role we play in developing our teams and getting them ready for what is to come. Sometimes people get stuck in their own career paths and goals and forget to stop and share their knowledge with others. Instead of working against each other, we need to work together and ensure that our industry stays strong.

Free: The market will stay strong in transportation. Dry van rates may level out, but we see an uptick in flat bed and refrigerated efforts. The ports are still experiencing a backlog and that product still needs to move, increasing intermodal loads. Although the number of new MCs is slightly down, we anticipate a strong 2022. Further, it is anticipated that interest rates will continue to go up and keep costs high, thus somewhat maintaining invoice prices. For 2023, we may see stabilization, although we’ve been saying that since 2020 and we haven’t seen the drop yet.