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Advice Desk: Broking into the Big Time

Dec 6, 2007
The invoice finance and asset-based lending (ABL) market has become increasingly competitive and therefore increasingly commoditised. With fierce competition among providers, facilities are arguably being sold on price as opposed to structure or quality of service. This is inevitable in a market that is becoming ever more saturated with providers, which at first glance appear to be offering broadly similar products.

A quality broker will be able to provide prospective clients with clear advice as to what is on offer, managing their expectations and matching prospects with the most appropriate funder, to ensure the correct fit of business cultures as well as the right product. This is important to ensure the longevity of the relationship, which will ultimately mean stability for both client and funder.

In-depth knowledge of both funder and prospects is the key to helping clients. Brokers can also provide genuine benefits to funders looking to broaden their customer base.

Pre-screening
A key part of the role is to not only to make sure the broker fully understands the client's needs but also to provide the funder with as much meaningful information as possible. This will ensure that a speedy decision can be reached regarding the optimum level of funding and appropriate funding mechanisms. The broker will prepare both the prospect and funder for the new business visit so that the meeting can be more effective.

As a volume business many brokers' deals are telephone based. Leads are pre-qualified to a high standard and often checked at Companies House for any adverse history. It is important that brokers understand the way funders work - they can save them time by introducing clients that match with their criteria. As Ian Lomas Commercial Director of Lloyds TSB Commercial Finance notes: "The most valuable brokers are those that effectively pre-screen prospects, understand what the requirements of the prospect are, understand the business, collate information and then look to place the opportunity with the most appropriate funder."

Client retention
As factors are actively targeting each other's clients for switcher business, a broker can play a very important role in business retention.

Once the deal is completed, it is important that close contact is maintained with the company. The most effective brokers will become aware of service or other issues and advise the funder of these in order to assist them in retaining the client and best serving their needs.

Many clients may be tempted to move to a different funder through a cheaper deal or on an extra few per cent of prepayment. It is possible to prompt the client to assess the full impact of changing a factoring company and to consider the value of continuing a trusted relationship with an existing finance partner. This helps clients consider the actual impact of moving behind the attractive new headline figures.

Pricing
The cost of using a broker needs to be measured by the overall return on investment received by the factor. Given the highly competitive nature of the factoring market, brokers need to add value not only to the process of winning business but also in terms of business retention. By pre-selling facilities, a broker can assist in a higher conversion rate from lead - to meeting - and ultimately to a new piece of business.

In this way a good broker can add value by ensuring the high overhead cost of the funder's sales force is best utilised. This is even more important as the cost of business acquisition for factors - mainly sales people's remuneration packages - is increasing year on year, while margins across the smaller facilities within the market continue to decline.

Inexperienced brokers may approach several prospective funders in order to cover all the bases and this could put downward pressure on pricing. However, dealing with brokers who strive to maintain excellent relationships with a broad spectrum of lenders mitigates this risk as the prospect is expertly matched using the in-depth understanding of which is the most appropriate form of funding.

Disclosure
There should always be honest and effective communication between funder, prospect and broker during the sales process to ensure the best solution is being put forward.

A broker should always be totally up-front with all the facts. They have a duty of care to the prospect to find the best solution and to the funder to divulge all relevant material.

It would be beneficial for the factoring market if there was also more sharing of information regarding 'bad' clients to allow the brokers to remove them from circulation earlier. If brokers become aware of underhand action by a funder, this should be highlighted and if serious enough, the broker should remove the funder from their panel.

Brokers as a key distribution channel
When introduced to a business by a broker, a funder should feel safe in the knowledge that the prospect has been properly advised as to the most appropriate funding options available to them, enabling funders to provide the correct facilities to prospects. As a result, the conversion rate in respect of introductions from a quality broker is extremely high, making brokers an efficient and cost effective source of new business.

According to David Thomson CEO of Close Invoice Finance: "A regular flow of new clients means that using a broker can become a cost-effective way of sourcing business. The broker network can even become a primary source of new business introductions and can therefore provide a very valuable route to market for a funder."

As Ed Rimmer, Managing Director, Bibby Financial Services notes: "Bibby Financial Services has expanded rapidly in the UK over the last 10 years on the back of developing key broker relationships. From Bibby's perspective, brokers have and will continue to form a vital part of our sales strategy and are still our key distribution channel given that we do not benefit from being owned by a high street bank.";

This is a view reinforced by Phil Woodward, Managing Director Leumi ABL Ltd: "At Leumi ABL we are delighted to have excellent relationships with the quality brokers in our market and will continue to value them and include them as an integral part of our sales and marketing strategy."

The value to both client and financier of using a quality broker is clear: the client benefits from independent advice and access to a wide range of products and solutions, while the financier is presented with a proposal that has benefited from the broker's advice, therefore fast-tracking the sales process and aiding conversion.

In addition, brokers have a beneficial effect on the expansion of the factoring market as a whole; 60 per cent of the deals we arrange are for clients new to factoring. Good brokers are working to expand the market, not simply move deals from one funder to another. The aim is to add value, by sourcing new business for the sector as well as raising the awareness of the product for the whole industry.
About the Author
John Mce writes for Hilton-Baird who offer free independent advice and has helped over 2,000 UK businesses raise extra capital including the use of invoice finance
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