Together we sell better… and more.
A Vendor Finance business model can be defined as the ability of recurrently providing a financing solution to your customer in order to facilitate the sale of your own products/services.
What you are really doing is facilitating the decision making of your customer.
The only thing that could prevent not acquiring a good that is technically and economically convenient for the business of your customer is the lack of investment capacity (even if temporary).
So what could make the customer happier than embedding a financing solution in your commercial offer.
Even if they had the cash to pay upfront, the customer wouldn’t refuse a clear, well structured financing solution, at fair market price and as “paper-free” as possible.
Then How can a Vendor (manufacturer or reseller of equipment) provide such a solution embedded in the sales offer?
Option 1: Captive Finance.
Companies with good and cheap access to large amount of funds could think of making the effort of building a captive finance unit, what in short means to start a new business unit, a customer finance unit which really means to become a financing entity.
Financing entities are distinguished by the fact that they lend money at a certain price for a certain term by taking the credit risk of the counterparty.
You probably have in mind names of car manufacturers following this model.
The great advantage here is that you control the relationship with your customer, you fully control the sales process and you can design a tailor made financing solution.
But remember you need to be good at credit risk (prudent origination policy and consistent portfolio risk management) but also at fundraising…
Option 2: Partnership with specialised Financing Entity.
If you are not a big manufacturer with access to large amount of cheap funding you may think of partnering with a financing entity.
There are a number of financing entities with this special vendor finance approach that can become an excellent partner for your business.
You can easily recognise these specialised entities because for them you, the vendor, is the customer. They look for vendors with a consolidated product and an average/good credit risk customer base. If this is your case they will be happy to become your business partner. They look for win/ win relationships, so they will help you to sell to more customers and to increase the average ticket but you have to provide them a good customer base.
Types of Partnership.
A basic Vendor Finance Partnership means then : you put the product and I put the financing (funds + credit risk) and together we sell better, but how you organise this relationship is really open to your imagination and adaptable to different situations.
It will depend on the level of commitment between parties, the split of responsibility or involvement in the business.
A Joint Venture for example is a tight collaboration model, a good approach when vendor and funder trust themselves and have really high expectations in the collaboration.
Some of the car manufacturers that you thought they were providing
In mature markets you can find Simple Partnership agreements, vendors who have basic SLA’s (response time and not much more) with different financing entities, with low or no commitments.
Finding the Right Financing Partner
The process to structure and launch a commercial offer including a financing solution must include the following steps:
- -Anaylse your product, your Customer and your Business Model.
- -Screening of entities with Expertise and appetite.
- -Sign a good Service Level Agreement.
- -Train the organisation and the sales team and Launch a financing campaign
- -Steering the Program
If you want to keep control of your sales process you need to embed a financing solution in your commercial offer.
Vendor Finance is not only for car and office equipment manufacturers , today you can find entities willing to finance any asset type, because probably the credit profile of the customer is much more relevant for them.