About a month ago, my house was burglarized. Smash and grab. Probably kids. All they took was jewelry.
The only “damage” was my front door. It had to be replaced.
Replacing a door seems easy. You measure the door you have. You go purchase a door the same size. You hire someone to install it. Simple, right?
The replacement of my front door took two people twice as long as any of us expected it to take one person. There were little things that kept showing up that required time, energy and expertise. I trusted the contractor (who I know through BNI) to do what was necessary for me to have what I wanted.
The end result is that I have a beautiful new front door. As the consumer, that is all that mattered to me. I needed a new door and I ended up with a new door. The steps in the middle, while patiently explained to me, were inconsequential.
Far too often we get hung up on the steps in the middle. This is particularly true with Factoring.
There are a lot of moving parts in factoring transactions. While I love to geek out with my colleagues about all of those parts; clients, prospective clients and networking colleagues (unless their behavioral style is such that knowing is important for them) usually don’t want or need to know the specifics.
It is Factors who have muddied the waters over the years. We like to explain all of the moving parts. We have made what truly is a simple financing concept seem so complicated that it is often viewed with mistrust and seems shrouded in mystery.
Keep It Super Simple.
Regardless of industry there are simple truths in business. Managing cash flow – knowing when and how much money will be flowing through your business – is critical to success and to every decision you make on that road to success.
Factoring can help with that.
The easiest comparison is to that of credit cards. If your business accepts credit cards, you have an agreement with your merchant processor that funds from approved transactions will be transferred to your bank account. For that service, you pay a fee. Your customer gets to enjoy credit terms, and your business does not have to deal with the potential cash flow challenge of waiting to be paid.
If you (and not a credit card company) extend credit terms to your customers – if you spend money today to provide a product or service and you are not going to be paid for that product or service for 30-45-60 days, that can create a cash flow crunch (particularly if your business is in start-up mode or a rapid growth cycle).
Factoring is the super simple concept of taking those invoices for the product or service you spent money to supply and turning them into cash flowing through your business. For that service, the Factor receives a fee.
See? Super simple!
The key is trust. I would have freaked out about how long it took to install my new door if I did not have complete trust in the expertise of the people handling the moving parts and middle steps.
With trust comes not having to obsess over the middle steps…
Know your end game, always…
Never forget to K.I.S.S.