The Living, Breathing Early Payoff

by LESLIE BROWN Sept/Oct 2020
Early payoffs can be detrimental to the health of the equipment finance community that consists of the vendor, broker and lender. Leslie Brown shares strategies to handle early payoff requests in a way that strengthens the relationships between all parties involved.

Leslie Brown, CLFP,
Mak Global Corporation

Is it too late to heal the cancer created by mishandled early payoffs? Early payoffs are living entities in the organization of equipment finance. They show dynamic patterns based on the interaction of the hosts: vendors, brokers and lenders. Observing them as vital organs in the community of our great industry is a regenerative idea practiced by regenerative leaders.

Long gone are the days in which it made financial sense to perceive early payoffs as dead matter — ghosts of a deal funded in the past. Regenerative business discards the illusions and excuses of early payoff mismanagement. It’s this same mismanagement that causes disease in our precious community, pressing each host past any economical healing method.

You are a part of this living community. Each broker, lender, vendor and borrower is a host. Some of these hosts are living communities in and of themselves, composed of multiple smaller hosts, each interacting and creating emergent properties of the bigger system. As a part of the community, your ability to thrive depends on the interactions between the other hosts.

It may sound scientific, but the effects present themselves in very simple experiences, like hearing your favorite vendor say, “We will not send any more deals to you if XYZ company is the lender.” Worse, as a lender, you may not hear feedback at all. You may only get an indication of the disease or health of your community by watching a falling metric. That feedback comes with no explanation as to the origin of the reported results.

Yet all the while the hosts gather to exchange information of their experiences, just as in a living body. The community creates patterns of behavior that can’t be understood by looking at each host individually. One customer, vendor or broker may decide the disease is too great and will not renew contracts for finance programs with certain lenders. Soon the entire community is at risk of  disruption.

This failure translates into job losses, failed careers, forced relocations, upheaval of individual lives, negative press, increased governmental regulations and unhappy hosts. It means we lose. We lose against our competitors and the organizations that would see us fail for their own benefit. We lose our vendors and customers, our organizations, accreditations, periodicals and publications. We lose our livelihood and sense of purpose.

That is a dire circumstance for equipment finance. Some industries may be filled to the brim with halfhearted hosts, but not ours. We are an exuberant family of adventurers and trail blazers. If we didn’t want to be here, we would have left for greener pastures years ago. That innate desire and passion for our industry is why failure is not an option. All that’s needed is the understanding of the relationship between each host.

The House of Early Payoffs

If the vendor, broker and lender each represent the vertices of an equilateral triangle, and the center of the triangle represents the healthy early payoff experience, then you see how each vertex (the broker, lender and vendor) are connected by straight, short and equal lines. Together they form the house for the borrower in which the early payoff lives.

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This simple geometrical figure gives you all you need to know about managing early payoffs, no matter which host you are or with which host you’re interacting. It goes as far as giving you a map to divine how the stress between any two hosts places strain on the third. Any movement of any vertex disfigures the equilateral triangle completely, thus destabilizing the house.

Imagine shortening the line of communication, process and understanding between the broker and lender. This shortening of the line extends the lines between each of them to the vendor, thus pushing the vendor farther away. It also squeezes into the house and causes discomfort for the borrower and the early payoff experience.

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No matter which host you represent or what the early payoff terms are for any finance product, the triangle reigns supreme and is a formidable tool for application of techniques designed to manage early payoffs in executive style.

As a broker, you understand the importance of honestly disclosing early payoff terms to each customer and being educated on each lender’s early payoff policies. As a lender, you understand the importance of communicating with brokers when an early payoff request comes in. You manage the communication with the customer in a way that reflects the strength and unity of the relationships you have with your broker partners. Each leg of the triangle is strong and congruent. The house is stable and the vendor and customer are confident in the programs they feed with business.

Raising Community Awareness

We do not need an expensive training manual to use this mental concept and achieve stability. At no added expense, we can arm all hosts within the community with the skills needed to think, predict and act with an intended purpose. It is only the awareness of the interconnectedness of individuals within the community that creates change — and awareness is free.

Represented beautifully when superimposed over the equilateral triangle, this training tool is a simple solution, costing mere pennies to draw on a sticky note and place on the screen of every portfolio manager everywhere.

Taking a few seconds to look at the visual reminder each time an early payoff is presented is entirely more efficient when compared with the hours you’ll spend on the phone trying to win back a customer, or far worse, a begrudged vendor.

During a Monday morning meeting, what might be 10 minutes, a quick conversation and a visual image symbolizing the relationship we all have to each other, can train entire teams to act more thoughtfully and responsibly.

Strengthening Our Connections

One of the most satisfying experiences is to receive a call from a lender partner with a request for help. I know the lender trusts me. The customer trusts me. I’m an integral organ in the body of that transaction and I have purpose.

Consider receiving a call from your lender in relation to an early payoff request: “Hi, John, Amy’s Eye Care called. They want an early payoff quote. We’ve put that together based on our numbers and considering our relationship, we thought we’d reach out. Any ideas, thoughts or concerns before proceeding?”

Then, there’s the inevitable experience of quoting a payoff wrong. A customer requested an early payoff quote. I misinformed the customer and advised there was no early payoff penalty. I acted irresponsibly and made a mistake. I called my lender partner, “Hi, Sam, I messed up. The customer wants to pay off, and I told them there was no penalty. Can I pay the penalty fee myself to ensure a reputation of integrity for my business?” I bet you can guess what my lender partner said and how they felt.

Take it a step further. Incorporate the patterns and behaviors of the other hosts resulting from early payoff management. Let’s not forget the vendor and borrower in our triangle. The vendor is holding up a wall of our house (two walls, if you want to get technical) and the borrower is inside. They visit, they talk and they have dinner together. Over dinner they say, “Hey, Chad, I talked with Leslie the other day and you know, she made a mistake on my financing — but I have to give it to her, she made it right. That gal’s A-OK.” You see? The vendor can pull away and shorten the relationship lines just as easily as the broker and lender, or they can uphold their relationships.

Sometimes even the best efforts of all involved cannot satisfy the hungry borrower’s gnashing inside the house and the lines are bound to waver a bit. In those circumstances, I always tell my team to do as the Spartans did. When in battle, unify. A unified lender and broker commands confidence and executes solutions.

When regenerative behavior becomes the habit of every vertex on the triangle, we will have created a healthy and fertile community poised to thrive. Being the preferred environment for more hosts, our community’s harvest will grow. Early payoff management direly needs this refinement now if we are to thrive.

Decide each day to be aware of the relationships that exist between each host. When you take action, be sure to consider multiple solutions and weigh their outcomes. When you execute, realize that a pull on one side of the triangle lengthens the other sides — representing that the health of relationships is paramount to our survival.

Your skill will take it from there. A little voice will call out in the back of your mind reminding you to take a moment, communicate a little more, be open to suggestions and see each early payoff as a living, breathing entity in need of the utmost care

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