A Strategic Edge

Vendor finance: giving dealers room for growth

• By Mark Scardigli
• Aug 01, 2013

Some equipment vendors can be hesitant when financing their customers. However, vendor financing is a significant way to gain a strategic advantage over the competition. For smalland medium-sized dealers, having a financing program levels the playing field by allowing competition against large manufacturers, particularly when a manufacturer has a captive finance unit. In addition to offering customers the service advantage of being a local, familiar contact, it is possible to offer attractive financing terms that give customers a one-stop shopping option.

Understandably, many equipment dealers do not have expertise in financing because their focus is on equipment. Dealers also may not think they have the resources or time to invest in building an equipment finance program, but creating this kind of program is not complicated and can be a turn-key operation. All that’s needed to provide a professional quote to include in every sales proposal is a simple tool that uses the cost and description of the equipment. By understanding the benefits of vendor finance for both dealers and their customers, as well as how to set up a program, dealers will be well positioned to land new customers and strengthen existing relationships.

Why is it so important to offer financing to customers?

Attractive financing options significantly reduce the customers’ incentive to shop competitors’ prices or explore a financing option that could delay the sale or lead the customer toward a competing dealer. It may be more feasible for a customer to make a monthly payment than to make a lump sum, cash outlay. Preserving cash right now is typically near and dear to the hearts of many small business owners, and financing provides more flexibility to manage cash flow. Several types of financing plans delay this decision, giving the customer the advantage of time to determine if owning the equipment in the future is worthwhile. From the dealers’ perspective, financing allows a relationship of trust to be established, enabling repeat business when additional equipment is needed and new advances warrant equipment upgrades.

The following steps are essential for dealers to establish a successful vendor finance program.

• Match sales strategy to financial strategy. Dealers typically want to build a sustainable customer base that provides repeat business every two or three years, as well as continue to add new ones. However, dealers need to recognize that if they don’t offer financing, they are probably not supporting their sales strategy. A financing strategy should integrate with sales strategy, remembering that cash equals a transaction, but financing equals a relationship.
• Find the right finance partner. When evaluating a potential financing company, begin with the following question: “Do they have my industry expertise?” “Is this partner going to be financially strong enough to support my program long-term?” and “Is this partner a full service financing company?”

Industry expertise will help ensure a knowledgeable partner with a proven record of success in building and maintaining programs in the dealer’s market. Financial stability is important to the longevity and strength of the program, and can save the inconvenience of re-establishing a new program in the future. For example, some leasing divisions within larger companies might change their business strategy and no longer support existing industries or dealership programs.

To find a partner, check out online resources, such as the Equipment Leasing and Finance Association’s provider database at http://equipmentfinanceadvantage. org/fp/ and industry trade shows.

• Commit to one finance partner. With the right full service finance company, the deeper the dealer’s commitment is to the partnership, the greater the services received. Generally, the credit window becomes larger as does the marketing, training and other support services. It is also far less complicated than using multiple financing sources and trying to maintain numerous relationships.
• Integrate financing into the sales process. Once a financing partner is in place, one key to success is to roll the program out to the sales people so they are comfortable offering it, fully integrating it into their sales process and including a finance option with every sales proposal. The equipment finance partner should be responsible for providing the time and resources to train a dealer’s sales people, whether in person, by webinar or other learning channel. The partner should offer coaching on using financing as a closing tool and to capture repeat business by being an extension of the dealership’s sales team and assisting in closing transactions with customers. To ensure all new sales reps can effectively present it, the financing plan, it should be incorporated into the human resource sales training process.
• Offer financing for small ticket equipment, too. Often dealers of smaller ticket equipment don’t consider it necessary to offer financing because of the smaller price points. However, keep in mind that customers don’t finance equipment only to avoid paying cash. They enjoy accounting, cash flow, tax and obsolescence advantages, among other benefits, that make financing equipment more attractive. It also helps solidify relationships, lock out competitors and focus on long-term, repeatable business.
• Use financing as a marketing tool to grow your business. Take advantage of the equipment finance partner’s marketing expertise. Dealers should leverage the resources of their financing partner to jointly market to their customer base, whether through direct mail, electronic or online promotions, or trade shows. Even monthly invoices can provide marketing opportunities by adding inserts with dealership news and offers. In addition, co-branded marketing pieces not only offer equipment with attractive payment options but will make the dealer’s organization look more formidable against larger, captive competitors since financing is offered.

A good equipment finance partner will help target specific customers to assist in growing the dealer’s business because this creates more customers for financing, a true winning partnership.

If dealers are only selling equipment and not bringing financing options that will enable them to be a one-stop solution for their customers, either their customers will find competitors that do, or their competitors are going to find those customers. Taking these steps builds a competitive edge so that neither of those options occurs.

This article originally appeared in the August 2013 issue of Security Today.