It is now the norm for manufacturers and larger vendors to offer some kind of financing solution to their customers and their motivations for doing so vary from a sole focus on income generation right through to a sole focus on sales closure support.

The financing model used also varies from, at one extreme, a loose referral program with supporting funders through to a formally established on balance sheet captive business with many variants in between.

Many companies have developed customer financing arrangements over a long period of time, and the rationale behind the strategy, structure and funding may well have changed over that period with changes to the business, customer and market conditions. However, the financing programmes often remain unchanged, still operating in the same way they have for many years and may no longer fully meet the requirements of the business today.

This leads to a number of tough questions that manufacturers and vendors should be asking themselves;

  • Is the customer finance programme still aligned strategically to the host business and is it driving the same priorities and objectives?
  • Does the structure of the programme, its organizational fit, remuneration policies, etc. drive the right behaviours and alignment with key business requirements?
  • Is the current financing model still the right one for the business? How should this be judged?
  • If this is no longer the case, what is the right model for your financing program and why? Is it outsourced to a single funder, a panel of several funders, a wholesale structure, a joint venture or risk sharing structure,a captive or something else?
  • Do you still have the right finance partner/partners for your business? How well aligned are they to your business and what could be improved?
  • Are the contractual arrangements with funders fit for purpose and do they provide the right level of support and sharing of income?
  • Have the finance products offered been regularly reviewed, do they meet the changing needs of your business and customers and the market?  Do they meet the regulatory and tax requirements and are you comfortable with the sharing of risk?
  • Do you receive the right information about the financing programme and is this information being used effectively to drive additional sales and revenues?
  • Is the service being delivered to your customers acceptable and do the financing processes fit comfortably and efficiently with your business?

These represent only a few of the critical questions that should be asked and there are many others that should focus on the areas of asset management, pricing, marketing, technology etc.

In some sectors it is not only customer behaviours and regulations that are changing – there is a fundamental shift away from financing equipment and towards the funding of service contracts. This can present significant problems for manufacturers and vendors and may require a complete rethink as to how a finance programme can support the business going forward.

There is no doubt that many manufacturer and vendor financing programmes could operate much more effectively and efficiently, supporting the business to achieve its objectives right across the business. However, do you have the methodology and expertise to undertake an objective and detailed review of your financing programme and can you commit the resources to seeing it through?

It is often helpful to get an independent review of the finance business whilst avoiding distraction from the day to day management of the business. Invigors EMEA has a wealth of experience in these areas and offers clients Vendor Finance Review and Captive Healthcheck Programmes which directly address these issues. For more information contact mike.roberts@invigors.com.

Mike Roberts
Partner
Invigors EMEA LLP