How Factors Can Grow Originations by Partnering with Debt Advisory Firms

Factoring firms have to find new clients to grow. Kurt Nederveld of Rainstar Capital Group explains how partnering with debt advisory firms can help factors not only increase origination volume, but origination quality.

BY KURT NEDERVELD

In today’s competitive environment, many factoring firms are looking for innovative ways to access the clientele they already serve. However, factors are always facing the battle of scaling their business with not just new clients but, more importantly, the right clients. Creating that target client profile, knowing how to get your product line in front of them and converting the relationship into a sale consistently is what separates the top originating firms from those that may struggle.

While there are myriad strategies to expanding a factor’s client base, using third-party strategic partners like commercial loan brokers and debt advisory firms can be an effective strategy to access the right clientele to grow a factor’s business. So, what steps must a factoring firm take to create a successful strategic partner channel with debt advisory firms?

Step One: Understand the Options

The first step is to understand the three profiles of debt advisory firms out there, which include individual debt advisors, small firms and large firms.

Individual debt advisors are often former bankers, sales representatives for direct lenders or financial advisors who have broken into the loan brokerage space. These individuals started their own firms with the desire to be an entrepreneur while staying in the capital markets.

Small debt advisory firms are those with fewer than 10 employees with the ambition to grow. Many times, the founder of a company will begin to realize they can’t do it all alone, so they’ll begin growing their team, and thus, the business.

Large debt advisory firms usually have somewhere between 10 and employees in addition to a strong leadership team, C-level executives, directors of sales, multiple sales teams and back office capabilities. These firms have the proper staff, technology and marketing to support a company doing business at an expanded scale.

Step Two: Accessing Candidates

Once a factoring firm understands the landscape of the debt advisory firm marketplace, they must understand the keys to vetting their options to find the right partner. After all, while a large debt advisory firm might be right for one factor, a smaller firm or an individual advisor may be right for another.

To get things started, a factor should understand the debt advisory firm’s industry clientele profile. The factor should ask the debt advisory firm about its track record in the industries, niche or otherwise, that the factor serves. The factoring firm also should probe how the finance broker firm is accessing clientele in these industries, whether it be through referral, online lead generation or offline networking strategies.

The factoring firm also must ascertain if the debt advisory firm is playing within the right revenue profile of the industries the factor serves. For example, some factoring firms will not deal with companies doing below $20 million in total top-line revenue, while others will. Getting detailed about top-line revenue, EBITDA, monthly accounts receivables averages and types of receivables a firm’s clients have will be key.

A key distinction a factoring firm must make when choosing a debt advisory firm is the level of credit training and underwriting capacity the firm and its team has. Is its team made up of sales people hawking financial products for commissions or are they former bankers with years of credit training? The latter group will better understand the value of receivables-based financing and how it assists clients in their growth or turnaround plans.

Step Three: Finding the Right Partner

Once a factoring firm determines the type of debt advisory firm with which to partner, they must start building relationships. There are a few key ways to connect with the right partners:

The first is to use national associations to seek out firms with which to work. Some great ones to start with include the National Association of Commercial Loan Brokers, the American Association of Commercial Finance Brokers, the Association for Corporate Growth, the Turnaround Management Association and Alliance of Merger & Acquisition Advisors.

Banker referrals can also be a useful strategy when looking to connect with debt advisory firms. Ask the existing bankers that refer factoring opportunities to you if they know of any local finance brokers in their geographic market. Sometimes bankers can be excellent referral sources to existing relationships and can provide positive or negative feedback on a firm or individual.

A simple internet search can be another effective geographic approach to build out a factoring firm’s partner channel, especially when you’re trying to seek and reach out to finance broker firms.

Lastly, speaking with CFO advisors, turnaround management consultants and growth advisors can be another great way to get referred to debt advisory firms, especially since you can convert these parties into additional third-party channels for deal sourcing.

Step Four: Match Priorities

Finally, after understanding the three profiles of debt advisory firms, the general landscape and where to find debt advisory firms to partner with, it’s important to understand what debt advisory firms desire of relationships with factoring firms. It starts with compensation. The more revenue you offer compared to what the firm gets currently from other factoring firms will go a long way to getting high-quality deal flow. You should also consider creating incentives and perks and that will motivate the debt advisory firm.

Money can only go so far, though. To create an effective partnership, a debt advisory firm will want to know that the factoring firm has a training platform to keep its team up to speed on product updates, process changes and lead generation strategies. In addition, building in-person relationships with the debt advisory team is key. Lunch and learns, sporting events and other corporate events are a great way to grow the relationship, both on a personal and professional level.

Due to the economic challenges of 2023, there is a huge opportunity for factoring firms to grow their businesses this year. With banks pulling back, craziness in the capital markets and clients needing capital for growth, factoring firms that strategically utilize the debt advisory channel will win. •