Addressing the common client objection regarding how their customers will perceive their use of factoring.
Factoring and its effect on customer relationships
Factoring generally does not negatively impact client-customer relationships and can often even improve them.
Factoring generally does not negatively impact client-customer relationships and can often even improve them. Factoring is more common a practice than many small business owners realize.
It is quite routine for large companies to have suppliers which are factoring their invoices. A clients’ access to cash through factoring in many cases can be seen as a positive development by their customers, particularly if there were prior concerns about the supplier’s financial stability.
The worry among potential factoring clients about how their customers will react to the knowledge that they are using factoring service is one of the most common objections you’ll receive from your clients when they consider factoring and that objection is “What will my customers think of me?”
This concern is largely unfounded: This concern is largely unfounded: Invariably the answer is it does not negatively impact relationships with customers.
Our clients generally have very strong customers and that’s why we’re able to factor for them. We rely upon the creditworthiness of those strong customers those big companies they are already paying factors for many of their suppliers. This normalizes factoring as a standard business practice.
For the customer, adopting factoring often takes nothing more than updating a payable address in an accounts payable system and now payments coming directly to the factor rather than going to their supplier. This underscores the operational ease for the client’s customers.
In situations where a client might be experiencing financial difficulties, factoring can actually be perceived positively by customers. It’s not uncommon that if our clients have a need for factoring their customers may be aware that there is some financial distress or they might be a bit of a cash crunch so the fact that they can now tell their customers that they have access to cash through factoring could often benefit the relationship. This reframes factoring as a solution that ensures the supplier’s stability and ability to continue fulfilling orders.
While all of our clients will worry what this is going to do to their relationship with their customers what it will most likely do is improve their customer relationships
Contact Factoring Specialist, Chris Lehnes
Glossary of Key Terms
- Factoring: A financial transaction where a business sells its accounts receivable (invoices) to a third party (the factor) at a discount in exchange for immediate cash.
- Accounts Receivable: Money owed to a company by its customers for goods or services that have been delivered or used but not yet paid for.
- Creditworthiness: The ability of a borrower to repay a debt. In this context, it refers to the financial reliability of a client’s customers.
- Payable Address: The designated location (physical or electronic) where a customer sends payments to their supplier.
- Accounts Payable System: The system a company uses to manage and track its outstanding debts to suppliers.
- Business Development Officer: An individual responsible for generating new leads and nurturing relationships to expand a company’s business.
- Objection (in sales): A reason given by a potential client for not wanting to purchase a product or service.
- Cash Crunch: A situation where a business does not have enough liquid assets (cash) to meet its short-term obligations.
- Supplier: A business that provides goods or services to another business.
- Factor: The third-party financial company that purchases a business’s accounts receivable at a discount.