If you are in the business of selling machinery, large equipment, or expensive technologies to businesses, you know that conducting an all-cash transaction is a tough sell. Not only businesses have limited capital available to invest in equipment or technology, many of them do not want to go through the lengthy procedures of applying for a bank loan. That’s where vendor finance programs come in.
The term ‘vendor financing’ refers to the lending of money by a manufacturer to its customers so that they can purchase the equipment or technology they need. This way, manufacturers can increase their sales volume with vendor financing even though they are buying their own products.
While increased sales volume remains the primary reason most companies set up a vendor finance program, there are various other benefits as well that make vendor financing a smart choice for businesses. These include:
1. Sell Products at a Better Price
Customers perceive vendor financing as an ‘incentive’. Since they are not required to pay a hefty amount right away, they are ready to buy a product at a higher price than they would have accepted if it were an all-cash purchase. This way, manufacturers can earn more revenue per sale and make accelerated progress towards their sales targets.
2. Negotiate More Favorable Terms
The company providing financing for the purchase of equipment or technology gains the upper hand in the deal. As a result they are able to exercise greater control and negotiate terms that suits their interests and preferences. In addition to this, customers are often ready to accept the terms because of lack of funding options available to them.
3. Generate a New Income Source
By opting for a vendor finance program, the customer is required to repay the loan in small monthly payments over the entire repayment period. In addition to this, they are also required to pay interest at a rate set by the financer. Since equipment and technology purchases often worth thousands of dollars, vendors are able to earn a significant amount of interest over the money lent by them to the customer.
4. Close Deals More Efficiently
With a vendor finance program, the purchaser does not have to search for financing or apply for bank loans. This saves the time the purchaser would have spent on completing all the paperwork required to secure a loan. As a result, the manufacturer is able to close a deal in a more efficient manner.
5. Gain an Edge Over Your Competitors
In today’s competitive marketplace where companies are seeking innovative ways to differentiate themselves from other market players, a vendor finance program can prove to be really valuable. Often time, a vendor finance program becomes the deciding factor for the purchaser when they have to choose between two products.
To learn more about how vendor financing works or to partner with KLC on vendor financing, please contact KLC Financial at 952-224-4300.