Have you ever been on a sales call, where you asked a question and the answer you received just did not make any sense? As sales professionals we are conditioned to be nice to our prospects. We are taught to be professional, after all we want the sale. It would do us little good to be antagonistic. We asked a question, and we received an answer. Prospects always tell the truth, right? For Financial services representatives selling in Card as an alternative payment method, knowing how your prospect borrows funds and what they pay for funds is critical to your success. Likewise, it is critical to know if they use their own funds to finance receivables and what that actually costs them in ROI. Conversely if those same funds were actually used to grow revenues as opposed to collecting it, what would the return be?
Recently, a very respected colleague of mine reached out to me to discuss the cost of funds. They led with the premise that selling in the B2B space had to be difficult at this time as the cost of funds was so low. I guess if that narrative is out there for long enough and often enough it must be true, right? Not so fast……
Businesses today that have receivables have choices to finance their receivables. They can borrow to finance them from an external source. As a business waits to be paid from their buyers, they in turn have to also pay their bills. Think of the typical business, they have labor and wages to pay, rent, electricity, and everything else to keep their business functioning. If they don’t borrow funds, it is usually because they have cash on hand, usually the product of a well-run business, but does it mean that it is being run as well as it could be. Cash not put to work in the business will fail to yield a rate of return on their capital which should exceed the value of it being used to collect debt.
It might be surprising to see, below is the average cost of some of the most common types of business loans. No these are not from 40 years ago; they are now in 2022. The cost of Money is rising and fast. Banks and Financial Institutions are generally for-profit businesses. They make money by lending money to businesses that need it. They do this by lending a portion of the deposits they hold to other businesses or by lending money they borrow from another Bank with which they themselves have to pay for. The guiding principle for this rate they borrow at is Prime Rate or in street terms the Wall Street Journal Prime Rate. It currently sits at 3% above the Federal Prime rate of 3.50% or 6.50%.
As sellers of funding, we are often in conversations with finance types about their cost of borrowing. Sometimes it seems a little like an Olympic sports event where you are told of these incredibly low rates businesses were able to obtain. And every call you go on it keeps getting lower and lower. The conversations go something like this, “So, what is your WACC”? Supplier: “Yeah, we are paying 2% right now.” 2%, you think? Can that be right? For the average salesperson, this answer is full of smoke and mirrors from the prospect. You begin to think, I am not sure about this? I have heard that funds are getting more expensive today, this seems to confirm that and as a result I will never be able to sell this supplier as I am a more expensive option for them to collect those receivables. Think again.
The key with any financial sale is doing your homework for yourself. At any rate (no pun intended) stop listening to the noise that says, money is cheap. That ship has sailed, and it is no longer even near the dock. Sure, for good businesses that have great credit and an excellent history of paying creditors on time and in full, funds will be less expensive than for those that do not. This is just the same as it is in the consumer world. Don’t though be fooled by your consumer experience either just because you bought that Car recently at 4% financing. You might have got 4% because of your good credit, but someone is paying along the line (the manufacturer) the cost to loan you the money to get you into the car. Banks are in the business of making money and they are not in the habit of lending money to businesses to lose money. They have to cover their cost to borrow and to lend.
Learning to question what you hear when it does not make sense is extremely important. If we don’t question what we hear, then simply we will never know what the response would have been. Allowing erroneous information to exist in our sales process only serves to delay the sale and frustrate the parties involved. Make sure you know your industry and get the information from those that can provide it, to make you better at what you do and more informed in the process.
Money is never for free. Discovering the costs, you sell against are paramount, because if you don’t know what someone pays for money how can you replace it with your option.
Roger McNamara Bio:
Roger is a 25+-year veteran of the Payments Industry, most recently as the Director of Business Development with American Express in the US. He has worked on the largest Acquisition targets for acceptance across multiple industries and across the globe that include: Airlines, Communications, Technology, Cruise Lines, Entertainment, Fractional Jet, Freight, Government, Healthcare, Insurance, Oil & Gas, Residential Rent, Restaurants, QSR’s, Retail, Services, Supermarkets, Travel, Vehicle Sales, B2B and Wholesale. Over that time, he has sold more than $300 Billion worth of Card processing and became an expert in Bankcard Interchange and Discount Rates, how they are calculated and what merchants pay to accept Credit, and how this is dramatically different from what they believe they pay. He is an expert in Merchant Statement analysis and payment processing and the rules and regulations associated with payments and the associations. Roger has also developed the insight for Merchant Services Salesforces and salesforces, in general, to be able to better position their products and gain share, particularly in B2B. Let him show you how you can too. He can be reached at Guide2Interchange@gmail.com