In past articles, I have detailed that the sale is never complete
until the financing is in place. Toward that end, I have discussed different
approaches to offering finance programs and this article will delve further
into how dealers and manufacturers should consider how to choose a financial
services model to support their sales efforts. There are five basic models
available which include referral, outsourcing, virtual joint venture, joint
venture, and true captive. Determining which model to implement requires
careful consideration of the company's short and long term business goals,
their desired control over the program and their tolerance for risk. The
various models range in complexity and degree of risk, and for now, we will
focus on the lower risk models which are referral and outsourcing.
A referral program is usually
informal and does not typically involve a written agreement between the
parties. Basically, the equipment vendor chooses a finance company to work with
and when a customer expresses an interest in a financing option, the vendor
provides him with a name and phone number of the finance company.
Generally, the vendor has no further involvement with the financing
component other than to provide an invoice to the finance company for the
equipment. Since this program is the least committal on the part of the vendor,
they are less likely be considered for other value added services that can be
provided by the finance company.
Outsourcing can take many
forms, but usually involves a written agreement with one or more third parties.
Unlike the referral model, vendors who opt for outsourcing programs actively
market financial services and include it in their marketing strategy. In this
model, lease transactions are sent from the vendor to a third party that
handles all of the details (credit processing, documentation and funding).
Frequently, these programs operate under the vendor's name and have the look
and feel of the vendor's company even though a third party is facilitating the
transaction details and process. An outsourcing program can be private labeled
or not depending on the vendor's program goals.
This type of program provides the finance company a greater level of
commitment from the vendor, and thus the vendor will be considered for other
value added services offered by the finance company including joint marketing
literature, trade show and open house support, and sales training.
Building and supporting any
financial services program is an ongoing process, and as with any working
relationship, is only successful if it is a true partnership. That means that
both sides have to commit to the relationship. Both sides must support each
other, and most importantly, the vendor must make training an ongoing priority.
Across the board, vendors that
offer financing programs agree that the financing program provides them with a
competitive advantage. The next step is then to consider what type of program
best suits their needs and find a reputable finance company to partner with.