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Qualifying a prospect quickly and properly is a must – a critical factor - in this business. I have developed a set of questions that
helps me pre-qualify prospects and evaluate whether the prospect should proceed to the next step and fill out an application or not. I find this to be a great time-saver and quite predictive of funding success. Prospects that
“pass” my pre-qualification process have a much higher chance of getting funded and usually become “high quality” clients.
By the way, both factoring brokers and small factors can (and should) use this process to enhance
their chances of funding success. I remember that in my early days, before I developed this method, I was so eager to fund any deal that I almost always started working on doing due diligence without having a good picture of
the prospect’s situation. This invariably led to a number of deals in which a “deal-killer”, such as an IRS lien, would appear at the 11th hour. The deal would be scrapped, leaving both myself and the prospect frustrated.
Fortunately, this situation stopped after I started doing a better job at pre-qualifying prospects.
If you are a broker, pre-qualifying leads will help you earn the respect of your funding sources, which will be eager to
work with you. If you are a small factor, pre-qualification is a “must do” unless you like spending due diligence resources on failed deals. Nowadays, I will not
accept a factoring application until I have had a chance to pre-qualify the prospect.
I pre-qualify prospects by asking a series of targeted questions about their business. I have them written down, just to make sure I
ask them all. Their answers and the way they answer questions helps me determine whether we should fund them or not. I always ask questions in the following three areas:
What business is the prospect in and who are the customers? This is critical because I need to make sure that the prospect is in a business that is factorable (i.e. has enough margins to support factoring). It also helps
me weed out prospects in industries that cannot be helped by my company. The list of businesses that can be helped by factoring is almost limitless, though we at Quantum Leap Financial Services (QLFS), shy away from
construction, trucking and medical receivables.
How much money does the prospect need? What will they do with the additional funds? Knowing how much the prospects need and what they intend to do with the funds should always – and I mean always – be your second question. I am always surprised by how quickly prospects disqualify themselves by telling me “I want to buy a nice boat” or “I want to remodel my house”. We only fund businesses that intend to use the money to grow the company (i.e. meet payroll, buy business materials, etc.).
Does the prospect have any liens/ judgments/etc.? And if so, why? Nothing can kill a factoring deal more quickly than finding a “surprise” lien or judgment during the due diligence process. Knowing this information upfront lets me assess whether I can help them.
I would recommend that you build your own list of “must ask” questions and keep it handy by the phone. Use it regularly and you’ll find
that the quality of the deals that you pursue will increase greatly.
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Marco Terry is a contributing author in small factoring “critical issues”. He is president of Quantum Leap Financial Services (http://www.qlfs.com), a factoring
firm in Boston. He works with brokers helping them get the “small deals” that help pave the way for the proverbial “Big Deal”. You can register for his free e-course on brokering emailing factoring@getresponse.com.
Copyright © 2003 by Marco Terry. Reproduction of this document without permission is strictly prohibited.
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