Situation

An equipment manufacturer with an in-house finance department was experiencing growing pains while introducing both a new product and a new financing method to its global customers.

The finance department’s systems were a patchwork of the parent company’s systems; something new needed to be developed, acquired or outsourced for the financing department to act as an effective captive operation.

The parent company had a different view of how its finance department should account for its new financing product, and this conflict was causing potential difficulties in the captive working with its distributors. Alta was asked to investigate and analyze these issues and make recommendations.

Solution

Alta consultants from two practice areas—Captive & Vendor Programs and Professional Development—recommended that the manufacturer consider a third-party service provider for its systems requirements to provide administration of the financing business from end to end. Alta also helped design a structure for booking the new financing product.

Alta’s background research included an analysis of third-party service providers who could assist the client. In addition, Alta conducted extensive research on the accounting nuances associated with its client’s new financing product.

Alta assisted this client in contracting with a third-party service provider for end-to-end systems capabilities. Alta’s assessment of how the new financing product should be accounted for was also accepted. This enables the client to increase sales while maintaining true sale treatment for the parent organization.

Within the parent organization, there were differing opinions regarding the accounting of the new financing product. Alta arranged a meeting between the parent company’s outside auditors, the parent company’s finance team and Alta. Ultimately, all agreed with Alta’s recommendation on how the new product should be booked.

Success

The manufacturer will now have greater international capabilities to grow its customer financing business. Growth will become evident in the next two years as the implementation is rolled out more broadly. The company will also more easily grow its volume of financed business with its new financing product because, now that the accounting question is answered, its dealer network will be able to provide its financing product to end-user customers and derive more revenue from doing so. Initially, this was a U.S. project only, but Alta’s recommendations are expected to be duplicated in other regions of the world next year.