The concept of the business model is important when looking for investors or lenders. How does the company intend to bring in revenue for the work they are doing? The structure of this model is created when the owner(s) sit down and figure out what exactly their offer is and how they plan to charge for it. Especially in the world of new technology, these questions can be answered in various ways. Software license models, seats charged, impressions of ads, page views, progress payments on a contract, time and performance engagements – the list goes on and on.
But considering how the revenue model will affect the future growth of the company is critical in planning for success. Clearly investors and lenders want to see a strategy they think will work through time tested assumptions rather than trying to develop some new form of commerce just for the sake of it being a new idea. This works in rare occasions where the technology is the commerce, but for regular business situations – buying and selling is still the way to go.
So when you are considering how you intend to grow, and how you plan to charge your customers, an early aspect to keep in mind is the notion of pre-billing for services that have yet to be delivered. Lenders care deeply about pre-billing because they are lending on the obligation to pay. As noted in the previous post, work must be finished and accepted. When the work is billed before it has been performed the customer has the right not to pay the bill in cases where the work never got done.
In the case of a factoring company, this means the repayment of the advance must be paid by their client which is not how factoring works. The factor advances on an invoice to the client and the customer pays the factor back. Any disruption from this transaction flow is seen as a problem and could affect the future of the factoring relationship. So when designing the business model and how you intend to get paid, consider the ramifications of pre-billing for your work.