While countless companies specialize in financing equipment acquisitions for customers, there is a growing trend for manufacturers to provide such financial services themselves. Of all manufacturers who offer a captive financing option to their customers, 67% expect equipment financing will increase as a percentage of their manufacturer sales.
There are numerous reasons for the growth in manufacturer-provided financing, including enhanced customer relationships, income generation, and value creation. Let’s look at each in more detail.
Rather than have customers negotiate separately with a third-party lender, with their own profit objectives, terms, conditions, and financial interests, manufacturers can create financing plans that are beneficial to their customers, as well as themselves. Customer satisfaction is typically increased as the entire transaction is handled by a single party, furthering the business relationship.
The financing side of the transaction also keeps the manufacturer in direct and ongoing contact with the customer. It’s much easier to sell to an existing customer than a new prospect, so this ongoing relationship, assuming a superior customer experience, will translate to increased business. At the end of the customer’s lease or financing term, the manufacturer will be well-positioned to discuss mutually beneficial options, such as purchasing the leased equipment or acquiring a new product.
Not only is income generated from additional sales due to the strengthening and continuity of the customer relationship, but interest income is created by properly structured financing, be it via lease or loan instruments. While the topics of credit risk and asset and liability management are too involved to cover here, it should be noted that much of the risk of financing can be mitigated by employing sound financial practices.
Leasing also provides the potential for additional income when equipment can be sold for greater than book value at the end of a lease. The manufacturer is best positioned to accurately forecast the residual value of leased equipment, as well as to realize additional revenue at resale.
There are numerous reasons for the growth in manufacturer-provided captive financing, including enhanced customer relationships, income generation, and value creation. To learn more about these topics in-depth, outlining the benefits of each to increase customer loyalty, you can download the perspective here, or submit the form below.