Manufacturers of durable goods that aren’t currently offering customer financing are missing an opportunity to build deeper relationships with their clients, experts say.
Customer financing is a way for manufacturers to bankroll their client purchases, much like how a car company might finance a consumer purchase. Patrick Kuhn, vice president of equipment finance with First Business Bank, says customer financing can be tailored to the needs of clients while providing manufacturers with an important competitive tool.
Car manufacturers have long recognized the benefit of customer financing. Ford and GM, for example, don’t want consumers to leave the dealership without buying the car and having the financing outlined.
“I think one of the biggest reasons (for customer financing) is the control of the relationship in the sales cycle,” Kuhn says. “Manufacturers who are not (offering financing) are missing out on matching the competition.”
Customer financing isn’t for all manufacturers. Makers of finished, long-term durable goods, such as tractors, office furniture or X-ray machines, can do well with customer financing since it provides an incentive for consumers who don’t want to pay the full price for a product upfront, Kuhn says.
When manufacturers don’t provide financing and consumers turn to a bank, Kuhn says “they’re trying to make the best deal for themselves instead of for you. By getting the financing in-house, you’re making sure you have all the components of the deal aligned to create a good deal for you and your customer.”
Plus, if a manufacturer’s competition is already providing customer financing, “the client is going to find a better offer out there that includes the financing,” Kuhn says. “Most customers shop around … there’s not an awful lot of brand loyalty anymore.”
To offer financing to their customers, manufacturers need a partner such as Backes & Isom in Kirkland, Wash., which helps manufacturers nationwide facilitate customer financing, or a local financing institution.
“There are typically three parties involved that need to have their needs met: the manufacturer who wants to sell more, the end users who want to acquire the equipment and the lender who’s going to fund the transaction,” says Mike Backes, CEO of Backes & Isom.
Manufacturers that can offer financing to their clients can tailor their offerings to each client, Kuhn says.
“The best financing is done consultatively, where you try to understand the purchasing company’s financial goals — what they’re trying to achieve over the short- and medium-term,” Kuhn says.
A manufacturer can then suggest ways to finance equipment that will enhance, or at least not interfere with, those goals. “A lot of times, that kind of consultation on especially bigger dollar equipment isn’t really happening,” he says.
That’s a missed opportunity for the manufacturer to strengthen the relationship with the consumer, Kuhn says.
“They could potentially teach their customers on how to stretch their capital expenditure budget,” he says.
Backes & Isom can help manufacturers sell more equipment by working with their dealers to determine specific financial needs, Backes says.
Oftentimes, dealers or end users will buy equipment directly from manufacturers and use lines of credit or their own cash flow. “That may not be the best alternative for them if they’re trying to manage risk or achieve their true financial goals,” he says.
Backes & Isom will normally ask either the dealer or end user whether they ultimately want to own the equipment, and the answer usually is based on factors such as the lifecycle of the equipment and whether there’s a tax benefit to owning the equipment. It goes back to a company’s financial goals.
“Interestingly, manufacturers that create and employ their own leasing captives or financial subsidiaries can also benefit,” Backes says. “These are all things that need to be considered, more than what’s the monthly interest rate.”
The benefits far outweigh the risks, and every manufacturer of durable goods has a strong opportunity in customer financing, Kuhn says.
“It really just takes understanding how it works to be able to assess and predict those risks, and then they become very manageable,” he says.