Vendors who offer a properly structured equipment leasing program are giving the customer a viable financing option. In addition,they are taking a major step to increase sales, market share, and profits. Yet it's surprising how many companies will not provide a leasing program. Some say it's 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. Customers can view the vendor as a one-stop shop where they can both fulfill their orders and get the financing they need, rather than having to seek financing from a bank or other financial institution.
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 customer's 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 vendors and customers for several reasons:
1. 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.
2. 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.
3. 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.
4. The leasing company will also be more motivated and go the extra mile to fund the most challenging credits.
5. 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.
Utilizing credit control allows the vendor to maximize approvals while getting the best possible rates for clients. Leasing companies often spend a lot of money on marketing to increase their sales volume. With a vendor leasing program in place, the leasing company receives a steady flow of very similar clients who are seeking equipment now, and need financing. Since no additional marketing funds were incurred to get those clients,leasing companies pass on the savings by virtue of favorable pricing. Thus,the company's customers benefit by enjoying lower financing costs as a result of its direct relationship with the leasing company.
Providing a lease option for 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.
To set up a vendor leasing program, the financing company will typically expect the company to be in business for at least a year. It will review the stability of the business and its customers. Leasing is usually easier to obtain than bank loans or letters of credit, even though there is a determination of risk to the finance company.