Building Better Relationship and Quality Services Towards a
Customer Centered Factoring Company
Zakaria Ab Rahim, Universiti Teknologi MARA, Malaysia
Dr. Norhasni Zainal Abiddin, Universiti Putra Malaysia, Malaysia
ABSTRACT
Factoring is one of many financial services and it is designed to improve cash flow of a business by providing
secured loan against the outstanding invoices of a business. It offers businesses a flexible means of growth by allowing
them to make maximum use of their assets; which in this case is invoice. It is a service of advancing monies to
businesses by purchasing their current invoices and collecting the debts for them from their debtors. All these activities
involved services and it means that the factoring company and its employee involved directly with the clients. It is
therefore, a quality service is needed to ensure the clients are satisfied with the services provided to them. In order to
provide the quality service, the company must be a customer centered service company where the company or the
service provider build and keep good relationships with the clients. The company must understand the needs of the
clients and how to satisfy them to the fullest. Qualitative approach was used in this research. It was conducted at one of
the largest factoring house in Malaysia and 100 samples were taken to represent the total population of the factoring
companies’ clients. Based on the implications of the research findings, several recommendations were discussed.
INTRODUCTION
Businesses today cannot afford to be hampered by financial problems or payment difficulties. All too often though,
invoices take longer period to be paid, which can seriously affect the cash flow of the invoices raised and a professional
and efficient means of collecting accounts from customers. This relieves from the burden of sales ledger administration
and provides management with more time to concentrate on marketing, production and distribution (Bickers, 1994).
Factoring is one of the fastest ways for small businesses to raise their cash. It may be the only option available to some
companies that are unable to get money from other sources of short-term financing. Factoring allows a business owner
unlimited cash flow opportunities based primarily on the amount and regularity of invoices generated, without having to
put together a cumbersome and complex financial application package (Dennis and Carter, 1994).
Kotler et. al (1997) suggest that the customer centered company is in a better position to identify new opportunities
and set a strategy course that makes long-run sense. By monitoring customer need, it can decide which customer groups
and emerging needs are the most important to serve, given its resources and objectives. Service quality has been
described as a form of attitudes related but not equivalent to satisfaction that results from the comparison of
expectations with performance (Parasuraman et. al, 1985). Therefore, higher levels of perceived service quality result in
increased customer satisfaction, but more recent evidence suggests that satisfaction is an antecedent of service quality
(Bitner and Mary, 1990).
There are several types of services provided by most of the factoring companies in Malaysia. There were: (1)
Notification Factoring; (2) Confidential Factoring; (3) Bulk Factoring; (4) International Factoring; and (5) Islamic
Factoring. Notification Factoring is the service which will be disclosed to the customer. Both, the client and the factor
will notify the customer via Notification Letter and all the factored invoices will be stamped to notify the customer that
the receivables have been sold to the factors and all payments for the invoices should be made to the factors.
Confidential Factoring will not be disclosed to the customer and all payments will be paid and collected by the client for
onward transmission to the factor. This type of service is specially designed for clients whose customers do not want
any interference of third party in their transaction. The customer will not be notified on the involvement of their
supplier in factoring. The clients will make collection of outstanding debts, and the factoring company will only
monitor movement of the account. Bulk Factoring is also known as Agency Factoring, requires the debtors to be
informed that all payments go to the factor but the client takes responsibility for the collection of the debts, effectively
acting as agent for the factor. The arrangement is for financing the trade credit requirements of the client’s debtors. This
service is appropriate when the client’s sales ledger operation is well managed and there are a large number of usually
small accounts. The clients will usually be charged with the handling fees on top of the other fees. The handling fee is
for the management of the large number of accounts and charged monthly (Bulletin, 2005).
International Factoring is provided to the clients who supplying to foreign customer overseas. In this situation, the
factor will employ a correspondent factoring company for the customer. It is located to manage the collection and cover
the credit risk. The payment of debts owed by the foreign customer will be made by the correspondent factors and the
correspondent factors will collect the payment from the customer. This is also known as Export Factoring. When the
customer is a local company and the supplier is foreign company, the factor will be corresponding with the foreign
factoring company to guarantee the payment and will collect the debt from the local company. This is also known as
Import Factoring. Islamic factoring is similar to the conventional factoring service except that the invoices factored will
not be charged with any interest (interest free) and this is in accordance to the Syariah principle. The factoring company
will buy the goods or contract from the supplier at the lower rate and sell the goods to the suppliers’ customers at the
normal rate as stipulated in the purchase order or contract. All the above services are normally provided on recourse
basis where the factor company is permitted to recover the amount advanced to the client in the event the customer fails
to make the settlement of the debts within the financing period provided to the clients. In other words, the client will be
required to repurchase the invoice sold (Bulletin, 2005).
Generally, this research is conducted to better understand the behavior of the clients of the factoring companies
particularly in seeking the quality service of the factoring company. Specifically, this research attempts to: (1) identify
the factors that influence client satisfactions of factoring companies; and (2) to identify the role of the employees in
delivering quality service to the clients and its importance in order to become a customer centered factoring company.
METHODOLOGY
The study was conducted on the clients of among the largest factoring companies in Malaysia operating in Klang
Valley. These companies were selected due to their active involvement in factoring their invoices, to the targeted
factoring company. They came from various industries that have the potential to grow. The nature of the respondent’s
business are supplier of construction materials, electronic products, communication tools, information technology
equipment, general suppliers for Malaysian government, local agencies and private firms, manufacturer of various hightech products and distributor of customer products. Altogether, there were 22 companies selected representing four
major economic sectors namely manufacturing, construction, stock-broking and general trading. The samples were
chosen on the basis of their paid-up capital size of more than RM200,000 and have been receiving the service of the
factoring company for more than one year. The respondents were obtained from the existing client’s list of the factoring
company and were chosen at random. They were 100 respondents participated in this study which consist of Managing
Directors, Accountants, General Managers and Finance Manager. Primary data were sought through questionnaire
survey in order to collect the raw information. The data have been analyzed using SPSS in order to get the descriptive
analysis.
THE RESULTS
Respondent’s Business Background
Table 1 below shows the background of the respondents which consist of nature of business, their operating period,
type of facilities taken, reason for taking factoring facility and reasons for selecting current factoring company. From
100 samples, 40% of samples came from trading companies, 20% construction companies, 16% industrial companies,
12% manufacturers, 8% services provider, 4% securities firms. Most of the companies have been in business for more
than 3 years and have been the client of the factoring company from 2 to 5 years. Out of 100 respondents which were
selected to represent the total population of the client, 92% of the respondents were satisfied with the core services
provided by the factoring company, whereas 4% of the clients were very satisfied with the service, while only 4% of
them had voted for less satisfied. The core service of the company is Notification Factoring (94%), while 4% using
Bulk Factoring and 2% of the respondents are using Confidential Factoring. It shows that the clients of the factoring
company are satisfied with the Notification Factoring where their customers will be notified on the involvement of its
supplier (the client) in factoring and the customers are required, and they have agreed, to make payment directly to the
factoring company. Results also shows that 42% of the respondents who take-up factoring facility are facing problem
with collecting their debts from the customers. It is therefore, important for the factoring company to understand the
client’s problems in order to satisfy them. Result also shows that recommendation from friends (46%) is one of the
important factors in choosing the current factoring company. It is therefore, important for the company to keep a very
good image and relationship when providing the services to them.
Table 1: Respondent’s Business Background
Items
Percentage (%)
Nature of business
Trading
Construction
Manufacturing
Services
Securities
Industrial
Operating period
Less than 1 year
1-2 years
3-5 years
6-10 years
More than 10 years
Period involved in Factoring
Less than 1 year
1-2 years
3-5 years
6-10 years
Type of facilities taken
Notification factoring
Confidential factoring
Bulk factoring
Islamic factoring
International factoring
Reasons for taking factoring facility
To solve the cash flow problem
To solve the collection of debts problem
To increase working capital
Reasons for selecting current factoring company
Its reliability as a subsidiary of a leading bank
It provides solutions of problems in business
Recommendation from friends
Lower price
40
20
12
08
04
16
02
08
32
44
14
10
44
44
02
94
02
04
00
00
34
42
24
30
08
46
16
Factors Contributed to Client Satisfaction
During the period of using the facility, some of the clients had lodged some complaints. The complaints vary from
one to another. The satisfaction of the client is not only based on the services provided by the factoring company but it
is also reflected from the way the company handled to their complaints. Therefore, 98% of the clients are satisfied with
the way the factoring company handles their complaints. As shown in Table 2 the most popular issue complaint by the
clients was the price charged to them. They claimed that the price of the facility charged to them is quite high (36%)
and the service is slow (32%). However, it can be concluded that the clients are satisfied with the overall services
provided by the factoring company.
Table 2: Nature of Complaints
Nature of Complaints
Price too high
Staff not helpful
The service is slow
No applicable to them
TOTAL
Percentage (%)
36
02
32
10
100
This result also shows that the clients of the factoring company were satisfied with the Notification Factoring
services. The factoring company will collect the debt from the customer and the customer has been notified to forward
all payments of the invoices to the factoring company which agreed by both parties before they enter into Factoring
Agreement. As far as the clients are concerned, from this research, it was found that the clients do not have any problem
with the way the factoring company monitors their account. There are two main factors that had influenced to the
client’s satisfaction: (1) good understanding of the factoring company and its personnel towards the problem of the
clients and; (2) continuous follow-up by the Client Relations Officer of the factoring company. The result has proved
that the relationship between the clients and the company is important in order to become a customer centered company.
The company must be in the position to assist the client to reduce their financial and debt collecting problems. There
were 80% of the respondents agreed to the importance of buyer-seller relationship. Table 3 shows the reason for the
satisfaction which good understanding of customer’s problem and continuous follow-up had been receiving the most
percentage (36%) each.
Table 3: Reason for Satisfaction
Reason for Satisfaction
Promptness
Continuous follow-up
Good understanding of customer’s problem
Satisfactory level of efficiency
Value for money services
TOTAL
Percentage (%)
10
36
36
08
10
100
Table 4 shows the criteria for choosing a factoring company. The result indicates that price was ranked as the
important criteria for a company to choose their factoring company (52%), followed by efficiency (56%) and speed in
delivery (72%). This result found that the sampled factoring companies have the quality of becoming a customer
centered company.
Criteria
Efficiency
Recommendation
Price
Image
Place/Location
Speed in delivery
TOTAL
1
32
0
52
2
16
0
100
Table 4: Criteria for Choosing a Factoring Company
RANK (%)
2
3
4
5
6
56
2
28
0
12
0
100
2
8
2
14
2
72
100
10
26
6
4
56
4
100
0
56
6
20
12
6
100
0
6
6
60
2
18
100
TOTAL
100
100
100
100
100
100
100
However, there are a few things that the company should be done in order to improve its service so that it could
emerge as a customer centered factoring company. When the client had sold their debts to the factoring company, it is
the responsibility of the factoring company to collect any outstanding debts from the customers. However, the
responsibility will only be carried out by the factoring company within the agreed financing period which normally in
180 days. After this period, if the debts are still not paid by the customer, the factoring company has the right to
recourse the debts to the client. The client, on the other hand has to return all the monies that have been advanced to
them by way of purchase the factored invoice, together with the interest accrued. This will result the client does not
benefit from the facility and factoring will no longer be seen as problem solver to the client. However, this could be
avoided if the client recommending to factor quality debts, which means, quality customer who has the ability to make
payment. Only quality customer/debt to be accepted and the factoring company have the right to refuse to accept any
debt, factored by the client, which has the potential to become bad. By having this policy, the possibility of the
company to be exposed to bad debts will be minimal and the client can avoid from incurring higher cost from this
financing. In order to satisfy them, the company must inform this policy clearly to the client during prospecting or client
briefing session. Inform the client what is the cost of making such a mistake and what should they do to avoid this.
Clients’ understanding on how to use the facility is very important. This is to avoid from misunderstanding from
the clients and this will create disagreement, dissatisfaction and disharmony between the clients and the factoring
company. When all of the above occurred, the possibility of losing the clients is great. It is therefore, one of the normal
practice of the factoring company before the facility is to be utilized by the newly approved clients, is to brief the clients.
It is therefore, concluded that the briefing is important for the client as well as the factoring company in order to ensure
the client understands the procedure of using the facility and the factoring company could take this opportunity to
understand the problems and expectations of the client. The research found that 100% respondents had attended to the
briefing conducted by the factoring company and 98% of the clients understand the procedures of using the facility,
after the briefing was conducted. Understanding of the usage of the facility is important because this would avoid the
client from misuse the facility and the company will face the problems when comes to collecting the debt.
The Role of the Employee in Delivering Quality Service
In order to deliver quality services, the employee must understand the job they are doing. Efficiency is one of the
most important criteria for a company to become a customer centered company. From this research, it was found that
58% of the respondents have put efficiency as the most important criteria that the company and its employees should
have in order to become a customer centered factoring company. It was followed by professionalism (68%) and open to
comment (44%), which is stated in Table 5 below. The result show that 90% of the respondents agreed that the
employees of the sampled factoring company are committed in providing services to the clients and had built a good
relationship with the clients.
Criteria
Table 5: The Criteria that the Employee Should have in Delivering Quality Services
RANK(%)
1
2
3
4
5
6
Professional
Efficiency
Caring
Helpfulness
Knowledgeable
Open to Comment/critic
TOTAL
18
58
18
4
2
0
100
68
20
6
4
0
0
100
2
18
4
12
36
44
100
12
4
36
30
6
2
100
0
0
34
46
12
4
100
0
0
2
4
44
50
100
TOTAL
100
100
100
100
100
100
100
This research also proved that professionalism is the next important criteria that the employee should have in
delivering quality services. Meanwhile, employee involvement is remarkably important to the company’s overall
performance because their contribution to the management and quality of their own outputs would be the major success
factor of the organization. Clients are expecting for a friendly, respectful and courteous service and if all this
expectation is met, the level of satisfaction of the clients towards the services of the company could be improved. The
employee of an organization or service centered company must also be able to open for comments and critics. In this
research, comments and critics lied as third most important criteria that the employee of an organization need to have in
order to deliver quality services. Comments and critics normally came from complaints and the employee of the
company should be trained to handle it the best way possible. Some comments or critics are very harsh and some are
good. From this research, it was found that the clients were happy if the company leave some room for them to
complaints and act upon it professionally and effectively. Furthermore, 83% of the respondents had agreed that the
employees of the factoring company had delivered the good quality services to them. It can be concluded that the role of
employees in delivering the quality service to the clients is very important since it could influences the satisfaction of
the clients and build a good relationship between the clients and the company.
CONCLUSION AND RECOMMENDATION
In order to become a customer centered factoring company, the company should redefine its business. They must
be viewed as client satisfying company rather than a factoring service company. Since the factoring company has
several range of services offered they should be known as a business problem solving company instead of factoring
service provider and this can be separated into strategic business unit. Solving the problem might not be necessarily by
way of providing the factoring facility, but it can be performed in the form of consultation on how to solve the client’s
problem. The client should also be consulted on what is the cost if the client takes the facility and what if they proceed
with the current practice. The factoring company should make it easy for its clients to deliver suggestions and
complaints. They must be opened to criticism and responsive to critics and complaints. Therefore, the company should
provide its clients suggestion box for the clients to place their suggestion or complaints if they feel that their identity
should not be known. This is normal practice of a customer centered company or organization. It is therefore, the
company should conduct the survey by distributing questionnaires or make telephone calls to the clients and find out
how they feel towards the services provided to them. The survey should include the client’s perception on the current
performance of the factoring company and what is their recommendation to improve the situation. Hence, it can be
concluded that the good relationship between the buyer and the seller is important and it is therefore contribute to the
development of customer centered company.
REFERENCES
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54 (4), 69-82.
Bulletin (2005). Services Provided by Factoring Companies. Marketing Bulletin. Kuala Lumpur: BCB.
Dennis, M. C. and Carter, R. (1994). What Creditors Should Know about Factoring, Business Credit, 96(4), 6-9.
Kotler, P. A., Leong, S. H. and Tan, C. T. (1996). Marketing Management: An Asian Perspectives, 8th Ed. Singapore: Prentice Hall.
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