Contradictions...

In my business, the subject of risk comes up on a regular basis. Yesterday I told you a story about prospects that tell me that their business has no risk at all. Today I will tell you a story about contradictions. This is a generic story but I hear it a few times a year:

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It usually starts with a prospect that needs purchase order financing (or factoring). The prospect makes a very passionate case when presenting the transaction and insists that their customer is a good customer - they always pay like clockwork. No risk to us, they say (literally). The last phrase always raises my level of concern.

The discussions progress normally and then come to a GRINDING HALT when prospect realizes that s/he is liable if their customer does not pay. "What?!?", they say. They then make a passionate case that if the customer does not pay, it should be our risk, not theirs. Apparently, they think we should take that risk because we are (presumably) going to finance the transaction...
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I can see why people look to shift risk. We all do. What makes this type of situation interesting is that the prospect is usually defending the transaction saying (passionately) we should do it because it's risk-less...and then gets upset when they are unwilling to take the risk of the risk-less transaction they propose. The emotional shift is interesting to watch.

As I have said before, the only risk free asset is US Government T-BILLS. All other assets or transactions have risk.

Ultimately, transactions like this one never get funded. Why? Because prospects that believe their transactions have no risk tend to also have unrealistic expectations about everything.

By the way, there is a way to reduce the risk of non payment by a commercial customer. It's a product called Trade Credit Insurance.


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Learn about business financing in Michigan.Information about factoring in Michigan and invoice factoring in Michigan. More information about Marco Terry.