Thu March 28, 2019 - National Edition Envision Capital Group LLC
There are four main reasons equipment vendors offer financing to their customers before and at the time of purchase.
1. Customer Retention
Offering financing can help strengthen customer relationships and:
Address customers' financial issues;
Answer their questions about the equipment; and
Help them with future lease/financing decisions at the end of the lease/financing term (e.g., whether to purchase new or existing equipment).
2. Incremental Income
Providing a financing option can:
Facilitate equipment sales; and
Generate additional revenue and benefits. In addition to an increase in interest income, additional revenue may be generated should the equipment be sold for more than its remaining book value at the end of lease.
3. Value Creation
Offering financing can help customers:
Save money: Because of the manufacturer's knowledge of the equipment and ability to resell pre-owned equipment, the manufacturer may be able to take additional risks on the residual value, which lowers the customer's monthly payment.
Get better terms: The customer will purchase equipment that might be otherwise delayed because of financing, and the manufacturer might be able to provide better financing terms.
Stay current: When a customer takes advantage of leasing/financing, it eliminates the risk of the customer owning equipment that is technologically obsolete.
4. A Growing Trend
Among manufacturers who offer financing for their equipment, a recent study shows approximately 30 percent of all equipment sales are financed by the manufacturer or its finance partner.
That rate is increasing each year as the financing division plays a more important role in the overall strategy of the company.
Of all manufacturers who offer a financing option to their customers, 67 percent expect equipment financing will increase as a percentage of their manufacturer sales (source: Captive Finance in a Challenging Economy, Equipment Leasing and Finance Foundation).
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