Brokers working with SMEs will undoubtedly do some debtor finance, but how can mortgage brokers break into this area? Scottish Pacific’s CEO and executive director Peter Langham reveals his top tips.
I always enjoy talking to the brokers who are our introducers, and hearing their stories of how clients have benefited from debtor finance. They are often surprised that more brokers don’t diversify and include debtor finance in their product offering.
In many cases, they have colleagues who don’t offer debtor finance because they are wary of the unknown or think it is too hard. Of course, those using the product know that this is not the case.
One of our introducers, broker Michael Garland of LendFirst Home Loans in Cairns, says he added debtor finance to his predominantly home loan-based business a few years ago, as part of a strategy to understand all the options that could help his clients.
“There is the perception amongst some brokers that debtor finance is too complex, or only for hard-up businesses, but that is not the case,” according to Mr Garland.
“When I left banking to establish my brokerage, debtor finance was helpful in allowing me to build a profile with clients, and to show potential clients that I offered a full arsenal, not just a narrow home loan option,” he says.
“Even for brokers who specialise, being aware of a range of products including debtor finance means that when opportunities arise you have the contacts and the knowledge to make the most of those prospects.”
Mr Garland’s words about being able to grow his business by offering a broad product range resonated, so I thought it might be useful to outline, with the help of some of our broker introducers, key tips for brokers who are looking to add value to the services they offer clients.
Know what questions to ask
Equipment finance specialist Greg Malone of G&H Financial in Sydney says asking clients the right questions about their business is the key to identifying prospective debtor finance clients.
“Keep an eye out for clients with unusual levels of growth, particularly rapid growth; also, clients who need to budget for seasonal challenges which can easily be overcome using selective invoice finance, without your client having to commit their entire ledger,” according to Mr Malone.
For Samantha Graham of QPF Finance Group in Brisbane, knowledge of debtor finance was key to her business growth. Firstly, knowledge of the questions to ask to find out if her clients were suitable for debtor finance. These questions include: Do you sell to other businesses on standard trade credit terms? Are you in a fast growth, turnaround, MBO, M&A or succession phase?; and Is lack of working capital hampering your growth?
Secondly, Ms Graham says helping her two largest clients to gain debtor finance facilities has given her a much better knowledge about, and understanding of, their businesses — even though she had been dealing with them for years.
“When introducing a factoring or debtor finance deal, the sorts of questions that are asked, really drilling down into the balance sheet, makes me feel much more a part of their business and with a much better understanding of what makes them tick. This has made a big difference to my business as it has helped me find additional solutions for them,” Ms Graham says.
Broker Paul Lambess of CVG Finance in Newcastle says many clients still aren’t aware of, or don’t understand, debtor finance.
“By really listening when they talk about their business issues, and by being able to explain the product, brokers can build closer relationships with clients,” he says.
“It’s a great starting point in that I find them a debtor finance solution, and from there the client and I might look at their home loan, lease finance and other potential products.
Mr Lambess adds: “Offering debtor finance helps me stand out from competitors.”
Don’t gatekeep client options
Michael Garland says clients might come to him with a loan or an overdraft in mind. They might be unaware of debtor finance, or have negative perceptions.
“It’s not my job as a broker, as an adviser, to withhold options from clients. Some brokers are aware of debtor finance, but don’t put the option to the client because they think they’ll say no, or that it’s too expensive,” he says.
“My tip is don’t become a gatekeeper. I like to put all options, including the less common and well-known ones, on the table so we can really drill down to what will work best for the client.”
In terms of expense, his advice is to look at the big picture, and help the client factor in the cost of opportunity lost, as well as timeframes and likelihood of approval. Once these are factored in, most clients don’t see debtor finance as too expensive.
Talk to business development managers within the debtor finance industry and other alternative lending providers, so you get a basic understanding of the product. The best providers are always happy to provide information and answer any questions. Educating yourself about the product means you will have a more realistic mindset about operating in this space.
“A good debtor finance company will help teach you how it works, providing an excellent point of difference for you to build into your own brokerage – it really shows clients you have great industry contacts who can help them,” according to Greg Malone.
Brokers successfully integrating debtor finance say the best tip here is not to give up if that first deal is hard to come by.
“If you don’t get a lead in the first six months, don’t give up. Once you get that first debtor finance deal, you’ll find family and friend referrals will start to flow. I think a lot of brokers give up too soon,” says Michael Garland.
Work with someone who doesn’t threaten your client relationship
According to Paul Lambess, it’s important to look for a provider who is strong on relationships, not just focused on sealing the initial deal.
"Every broker likes dealing with lenders who respect you as a broker and want to truly partner with you – the good ones don’t just pay you a commission and take your lead, they want you to grow your business too," he says.
For any broker considering diversifying into debtor finance, I’d encourage you to give it a try.
It’s not a hard type of finance to understand, the good providers offer plenty of support and the rewards – from commissions, to creating other business opportunities with clients and facilitating deeper relationships with them – will make it very worthwhile.
Peter Langham is chief executive of national working capital solutions specialist Scottish Pacific Business Finance, which handles more than $10 billion of invoices each year, providing funding lines exceeding $800 million. Originally training as an accountant, Peter has more than 30 years’ experience in the debtor finance industry. He has overseen significant growth at Scottish Pacific, which has consistently outperformed the market over the past five years. Scottish Pacific was named by brokers as Best Cash Flow Lender in The Adviser's Non-Bank Lending Awards for 2014, 2015 and 2016. The group was also named Best Trade Finance Provider at the Trade Finance Global Excellence Awards 2015.
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