In an effort to stimulate its sales, a retail vendor can align with a leasing company and provide what is known as vendor leasing. To do so, the vendor establishes a deal with a financing source so that the vendor can offer leases to customers. Essentially, the outside leasing firm substitutes as the vendor’s captive finance company.
Vendor leasing allows vendors to offer customers another option besides just cash-on-delivery or 30-day terms. On high-ticket items this can be a major benefit, since it may not be possible for some customers to meet such immediate payment terms. By extending the financing option through the outside financing company, the vendor offers a choice that allows customers to better maintain their own cash flow.
Vendor leasing, also known as lease asset servicing or vendor programs, helps build vendor-customer relationships while improving vendor sales volume. Customers can view the vendor as a one-stop shop where they can fulfill their orders and get financing, rather than having to seek financing beforehand from a bank or other lending institution.
By offering a financing program, the vendor is making a cash sale while receiving the funding from the finance company. This allows a vendor to have additional funding available for its own cash flow needs while collecting on the finance terms that it presented to the customer. Depending on the structure of the deal, the vendor may collect the money and then turn it over to the finance company, or (as is often the case) the customer may pay the money to the finance company directly.
Credit checking and operational administration may also be handled by the finance company. Either way, the result is the same — the vendor provides a finance option to its customers and if they accept it, the vendor receives cash from the financing company. Automobile manufacturers and dealers have been providing financing to customers for some time. A larger financing source (such as GMAC) can provide very good terms, while individual dealers typically cannot.
If you are a vendor, a vendor leasing program can give your business a competitive edge over competitors who are unable to offer anything similar to their customers. By using the financing option, customers can also opt for top-of-the line items, which they could not otherwise afford with 30-day payment terms. In addition, you have the funds to build your inventory and offer a wider selection.
To set up such a program, the financing company will typically want to know that your company has been in business for at least a year. It will review the stability of your business and the customers with whom you make transactions. While there is some determination of the level of risk to the financing company, this type of financing is normally easier to obtain than bank loans or lines of credit.