Borrowing money is as American as apple pie. Americans
borrow money to purchase houses, to finance automobiles, and to pay for luxury
items on their credit cards every day. It is a rare individual that can pay all
cash for their house, their car, or their credit card bill every month. The U.S.
economy thrives on credit because of the recycling of cash when these purchases
occur. America
is an economic powerhouse, partly because collectively we borrow so much money
to have things today, instead of saving the cash to buy these items some day,
if ever, in the future. Economic theorists are of the opinion that when you
purchase a house, the cash recycles about seven times: to the realtor, to the
title company, to the mortgage broker, to the lender, the butcher, the baker and
the candlestick maker, and so forth.
We live in the land of opportunity. You do not need a
college degree or pedigree to become an entrepreneur. All you need is the
ability to organize, manage, and assume the risks of a business with a
sufficient amount of cash to fund the business.
Borrowing money is the American paradigm for success for
individuals and for businesses. According the American Heritage Dictionary, a
paradigm is:
- One that serves as a pattern
or model.
- A set or list of all the
inflectional forms of a word or of one of its grammatical categories: the
paradigm of an irregular verb.
- A set of assumptions,
concepts, values, and practices that constitutes a way of viewing reality
for the community that shares them, especially in an intellectual
discipline.
Usage Note: Paradigm first appeared in
English in the 15th century, meaning "an example or pattern," and it
still bears this meaning today: Their company is a paradigm of the small
high-tech firms that have recently sprung up in this area. For nearly 400
years paradigm has also been applied to the patterns of inflections that
are used to sort the verbs, nouns, and other parts of speech of a language into
groups that are more easily studied. Since the 1960s, paradigm has been
used in science to refer to a theoretical framework, as when Nobel Laureate
David Baltimore cited the work of two colleagues that "really
established a new paradigm for our understanding of the causation of
cancer." Thereafter, researchers in many different fields, including
sociology and literary criticism, often saw themselves as working in or trying
to break out of paradigms. Applications of the term in other contexts show that
it can sometimes be used more loosely to mean "the prevailing view of
things." The Usage Panel splits down the middle on these nonscientific
uses of paradigm. Fifty-two percent disapprove of the sentence The
paradigm governing international competition and competitiveness has shifted
dramatically in the last three decades.
For more dictionary information please see: The American
Heritage® Dictionary of the English Language, Fourth Edition Copyright © 2000
by Houghton Mifflin Company.
Published by Houghton Mifflin Company. All rights reserved.
What
does this have to do with accounts receivable financing?
Banks
exist primarily to loan money to people and businesses, on a safe and sound
basis according to federal banking regulations. The banking paradigm for
businesses involves offering checking and savings accounts to take money in,
and offering various types of business and personal loans to get the money
out. Their goal is to make a profit on your cash for the bank. To qualify for
these loans you have to prove, to the banks satisfaction, that you have the
clear and present ability to repay these loans. If you are a startup company, a
company that is growing very rapidly, or an established company that is
affected by a sudden negative event, the banking paradigm may not work for you.
Perhaps, you need to think differently; perhaps your perspective is inside the
banking paradigm box and you need an alternative.
What
is inside the box thinking? According to
'Thinking Outside the Box'? By Ed Bernacki Published April 2002:
Thinking inside the box means accepting the status quo. For example, Charles
H. Duell, Director of the US Patent Office, said, "Everything that can be
invented has been invented." That was in 1899: clearly he was in the box!
In-the-box thinkers find it difficult to recognize the quality of an idea.
An idea is an idea. A solution is a solution. In fact, they can be quite
pigheaded when it comes to valuing an idea. They rarely invest time to turn a
mediocre solution into a great solution.
Mr. Bernacki distinguishes inside the box thinking vs. thinking outside
the box as follows:
Outside the Box
Thinking outside the box requires different attributes that include:
- Willingness to take new
perspectives to day-to-day work.
- Openness to do different
things and to do things differently.
- Focusing on the value of
finding new ideas and acting on them.
- Striving to create value in
new ways.
- Listening to others.
- Supporting and respecting
others when they come up with new ideas.
Out-of-the box thinking requires openness to new ways of
seeing the world and a willingness to explore. Out-of-the box thinkers know
that new ideas need nurturing and support. They also know that having an idea
is good but acting on it is more important. Results are what count.
If your B2B business does not have enough bank credit to expand at the rate
you need, or if your B2B business cannot take advantage of growth opportunities
because of lack of funds, you may need to think differently: think outside the
box. Think of using the virtually unlimited financing that is available from
accounts receivable financing.
To think differently, you may need to overcome the two most common inside
the box concerns regarding accounts receivable financing.
Objection: Our customers will not want do business with our company if they
know we are dealing with a commercial financing company to finance our accounts
receivable.
Think Differently: Accounts receivable financing allows you to offer credit
terms, like the bank. Many businesses prefer to resell your products or
services and earn a profit before they have to pay you for your product or
service. Accounts receivable financing generally involves notification to your
customers of the arrangement to manage your receivables; and verification
from your customers that your product or services were satisfactory. From your
customers point of view, someone in their accounts payable department is
changing the pay to portion of their check to the address of a commercial
finance company. Usually the check is cut payable to you and sent to a P.O. Box
of the commercial finance company. In certain situations, notification may not
be required at all; this is called non-notification factoring.
Objection: Accounts receivable financing is too costly.
Think Differently: Accounts receivable financing is a paradigm for success;
you will have the necessary working capital you need to fulfill larger orders
by accelerating your cash flow. You will need a gross margin of 20% or more, in
general, for this type of financing to make economic sense. There is an inverse
relationship between the cost of financing and the size of your credit
facility: the larger the credit facility, the lower the cost. In other words,
the fees and rates will be less for 500,000 per month than for 25,000 per
month.
The bottom line: Accounts Receivable Financing- Think Differently! is
intended to help you think outside the box and become more profitable. One
tried and true paradigm for achieving this result as an entrepreneur with a B2B
business is accounts receivable financing.
Copyright © 2007 Gregg Financial Services
www.greggfinancialservices.com
