Offer a Vendor Leasing Program to Enhance Sales and Profits
Equipment vendors who offer a properly structured leasing program are not only giving the customer a viable financing option, they are taking a major step to increase sales, market share, and profits. Yet its surprising how many companies will not provide a leasing program. Some say its because their customers have their own sources. Others say their customers pay cash. This mindset can be costly in a variety of ways. The biggest problem is that it can drive the customer to the arms of your competition.
Some equipment suppliers do offer a leasing program, but give the customer a choice between several leasing companies for them to use. That may sound practical, but shopping deals with a multitude of leasing companies can actually lower the chance of approval. If the customer chooses one of the leasing companies, and is subsequently declined, two negative actions may result. First, the credit inquiry lowers the customers credit score. Second, it will be clear this is a shopped transaction, and will make it more difficult to get the credit approved. If it is approved, the lower credit score will cause the rate to be higher.
Establishing a sound relationship with one reputable leasing company is the best course of action for both your company and your customers for several reasons:
The relationship (allowing one leasing company to be involved) should result in lower rates for your customers, thereby making it more attractive to buy from you. If a vendor uses multiple companies and shops deals, they will not usually get the best rates.
Using one leasing company results in better pricing because of increased volume. Leasing companies make more money when deals come through referrals, rather than expensive marketing. The referral business is more profitable because it provides a steady stream of deals from clients who are looking to acquire equipment now and need financing.
Because maintaining the relationship with the equipment supplier is critical to profitability, they will do everything in their power to keep the approval rate high and the lease rates low. These savings are passed on to the client.
The leasing company will also be more motivated and go the extra mile to fund the most challenging credits.
Because of economies of scale involved with large volume directed to the leasing company, the supplier is often entitled to referral fees of 1% to 2%, thus providing an additional income stream.
Providing a lease option to your customers has tremendous advantages to everyone involved. Both the leasing company and equipment supplier will likely enjoy increased profits and the customer can acquire much needed equipment without a large down payment. Another advantage to the customer is that leasing allows them to easily upgrade their equipment package to a state of the art level.
email: kenth@ocflink.com
web: http://ocflink.com
Kent Harlan has been a CPA since 1984 and has provided consulting, accounting and financial services to several industries. He is the owner of Ozarks Capital Funding, LLC, a Springfield, MO based company offering financing in the areas of accounts receivable factoring, equipment leasing, asset based lending, and health care providers. He is an active member of the Missouri Society for Certified Public Accountants and has written several articles for various publications.
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