Once the customer has decided to finance the acquisition of products, financing through the vendor is often more desirable than going directly to a bank or leasing company for a variety of reasons.
• Customer Demand: One of the most common reasons why vendors start vendor finance programs is because customers are asking for financing from the vendor. If the vendor program is structured properly, vendor financing can be put in place for the customer faster and more easily than financing directly from a third-party funding source.
• Better Pricing for the Customer: Through the use of vendor incentives, it may be possible to achieve better pricing for the customer on the financing than the customer would get through its own bank.
• Close the Sale Faster: For many equipment & software companies, most sales occur at the end of the quarter, and the ability to close quickly on financing is essential. Setting up the vendor program in advance speeds up the sales process.
• Meet Competition and Increase Sales: Another common reason to start a vendor program is because the competition has one. Sometimes whether or not the vendor has a finance program can be the deciding factor between your product and your competitor’s.
• Improve Cash Flow: Part of setting up a vendor program involves working closely with one or more funding sources in order to shift the risks of financing to a bank or leasing company that is in the business of extending credit. As a result, the vendor receives cash upfront and can improve cash flow.
• Improve DSO: Through careful structuring, it may be possible to improve “days sales outstanding” by selling customer receivables on a nonrecourse basis.
• Shift Credit Risk to Bank or Leasing Company: Perhaps the most important benefit of setting up a vendor program, however, is to shift customer credit risk to a bank or leasing company.