David Banfield, President, Interface Financial Group
David Banfield, President, Interface Financial Group

If you asked people on the street to name a franchise, you would probably get the same response from almost everyone — a certain fast food outlet known for its golden arches.

But the days of franchising being relegated to fast food and automotive repair shops are long gone. There is a veritable plethora of opportunities for would-be entrepreneurs. Franchising has expanded to include services similarly to the way that it did when fast food dominated the marketplace.

For the purpose of this article, franchising is defined as a written-down system that covers the operations of a specific business in such a way that the business can be replicated in different locations. There are thousands of franchise options in North America today, and many of these organizations have a long and stellar history.

The financial services industry has played a significant part in franchise industry growth over the past few decades. Invoice discounting was probably the pioneer in terms of a franchised approach, followed by factoring. Both of these areas are now well established and offer domestic and international networks for their clients and franchisees.

The benefits of a franchise umbrella are substantial for the franchisor, the franchisee and the clients they serve. The client benefits by receiving local service under a franchise arrangement. In a non-franchised situation, service could come from a centralized head office location that may be thousands of miles away from the client. Having the opportunity to deal with their financial source on a local basis adds considerable value to the relationship.

Skin in the Game

Many people assume that factoring or invoice franchising is an extension of a branch network system, resembling a branch of a national bank in the neighborhood. On the contrary, in a franchise model, the franchisee is a principal in the business and not a representative or agent of the head office. As a principal, the franchisee invariably has a financial involvement in each transaction — far different from a client-representative relationship.

For individuals with a strong desire to grow and run their own business, opportunities under the franchise umbrella are substantial. One other difference in a franchise arrangement from a “branch” relationship is franchisees are required to make a financial commitment and, as with all franchise operations, will need suitable financing to engage in the business.

From the franchisor’s point of view, having franchisees in numerous locations around the country adds a new dimension to the due diligence aspect of transactions. In a non-franchised environment, the factor or invoice discounter will have to dispatch individuals to conduct local on-site due diligence. This is both a timely and costly part of doing business and can quite often delay transactions to the point where opportunities are lost. Under the franchise arrangement, the franchisee is literally on the spot and able to conduct due diligence in a much more timely and cost-effective manner. Having a franchisee conduct the due diligence often produces a more thorough evaluation since the franchisee will — should the transaction proceed — have a financial obligation and financial commitment in the transaction. From the client’s point of view, having a local contact to work with face-to-face is an added bonus.

Established System Benefits

The benefits of a factoring or invoice discounting franchise model are similar to those found in any franchise relationship. A franchise provides an established system with written-down procedures and substantial history to rely on. There is no need for franchisees to reinvent the wheel when setting up the business. Unlike other entrepreneurs, they can avoid substantial setup costs for legal paperwork and documentation issues because the franchisor handles these. All the legalities will be in place when the franchise is awarded.

An established back-office system will also be in place which will relieve the franchisee of having to organize its own procedures. Again, this will be a tried and tested method that will, for the franchisee, eliminate much of the paperwork burden of running the franchise. Technology plays an ever-increasing role in the business cycle today, and investment in necessary technology can be expensive and time-consuming. Under the franchise model, the franchisor invests the time and expense involved in selecting and installing the technology, and the franchisee benefits from utilizing those services.

In factoring and invoice discounting, becoming a franchisee is often a turnkey situation. Operating a franchise does not necessarily require leasing an office. Providers can work from home, reducing overhead and cost. Likewise, there is less need for support staff since the franchisor will provide back-office services. From a marketing point of view, because this is a turnkey situation, the franchisor will be able to provide direction in terms of the desired marketing approach to build the business based on many years of experience.

As with almost all franchise systems, extensive training will be provided before the doors open for business. Franchisees will be required to undertake a course of study and training to equip them with the methodology and approach that the franchisor has developed. Once the initial training is complete, most franchisors provide ongoing coaching and mentoring programs to ensure that franchisees get necessary support in their new venture.

Individuals who believe this type of business will suit their background and ambitions should carefully investigate all franchise opportunities available, perhaps even those outside financial services. For many, franchising is still a new and untried approach, so it is essential to understand the relationships involved in a franchise award. A franchise is not something that can be purchased “off of the shelf.” It is, in fact, an award, and franchisors are careful when selecting recipients because they are entrusting franchisees to care for and promote the brand.

Expanding beyond fast food and automotive products, franchising extends into hundreds of different industries and services. A financial service franchise represents a “win situation” for the franchisor, which enables the expansion of its network. At the same time, the franchisee is empowered to acquire the knowledge and background of an established business to operate in their own area. A franchise offers clients a local contact and an opportunity to do business with a person across the desk, as opposed to across the country by telephone or email.

Franchising adds a new dimension to both factoring and invoice discounting and offers extensive opportunities for would-be entrepreneurs looking for a white-collar franchise opportunity.