If you are in the business of selling equipment to other businesses, then the first question I would ask you is what percentage of your sales are for cash and what percentage does the customer require financing?
The more times customer financing that is required, the greater your sale is obviously at risk if they either can’t figure out financing on their own, or if the vendor program you’re working with is unable, or too slow to get your customer an acceptable equipment financing solution.
The good news is that there are many different sources of equipment financing available to a wide range of customer financial and credit profiles. The bad news is that this still does not guarantee that funding will be in place in the time required for you to close your sale or not lose your sale to a competitor.
For well established vendors and dealers, its very common to regularly have finance companies and equipment financing brokers call you up to see if they can arrange funding for your customer either in the form of an equipment loan or equipment lease. Its also very common that as an established vendor you already have a working relationship with a third party provider of equipment financing for your customer transactions.
What then becomes important is the success you’re having with your vendor program and how that’s translating into more sales being closed on a timely basis.
If you’re not already doing so, a periodic review of the your sales offers and closing is important to make sure you aren’t missing out on sales due to customers not being able to arrange financing. If this is the case, then you should seriously look at changing how you’re doing things and who you’re working with.
If your close rate is not where you want it to be, then here are a few things to consider when assessing how to improve it.
First, are your customers getting an offer for financing fast enough to close the sale without competitor interference. Especially in situations where you’re trying to steal a customer from a competitor, the sales window can be very small and if financing is required to close the deal before the competitor reacts, then you need to make sure you have a program in place that meets this sales requirement. Going one step further, an analysis of the sales process may identify certain steps/items that if a leasing company could cover off differently or faster, the overall process would complete much faster. This could relate to the way credit applications are collected, how lease documents get delivered, steps in the funding process, and so on.
Second, does your current vendor equipment leasing program properly represent your average customer profile related to credit needs? For instance, you could be working with a customer financing program that only looks at strong “A” credit. If 20% or more of your customers are not strong “A” credit, they are getting declined and trying to find funding somewhere else, which could lead them to the vendor financing program offered by your competitor.
If you have a very homogenous customer base with respect to their financial and credit profiles, then one mono line lending source with a specific credit focus can work just fine. But if your customer base is more diversified with respect to their individual ability to quality for credit, then you’re going to need to be working with someone that can provide a broader range of financing options.
A broader range of credit profiles also tends to lend to greater facilitation skills by your vendor financing partner. On a deal to deal basis, the financing challenge can be significant in a diverse customer group, so you need to be working with individuals that have the skill set and broad access to capital necessary to figure out a timely credit solution for most customers most of the time.
It all starts with analyzing your close rate and see if its where it should be.
If you’re not offering customer financing options today, the other thing to consider would be how much incremental sales volume could you generate if you were financing customer equipment sales. Sometimes just offering a financing option can be a spring board to a significant sales increase over time. If this is coupled with the right customer equipment financing program the results can be further magnified.
If you would like to set up a financing for your customer equipments sales, or evaluate your existing program, then I recommend that you give us a call for a free assessment of your customer equipment financing options.