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Financial Merchandising

A tool for distributors

In our current economic downturn, attracting new and repeat business is becoming increasingly difficult. However, one tool will turn this trend in your favor: financial merchandising. This tool has weathered the test of time because it allows salespeople to bring added value to their customers.

Providing a low monthly payment as an alternative to paying cash makes it much easier for your customer to swallow the purchase and for you to overcome their objections. A low monthly payment can also allow you to upsell bundled add-ons or additional products.

There are two types of lease/finance options. The first is an operating lease, sometimes referred to as a “true lease,” and it offers the most options at the end of the term. This form of lease is perfect for customers who are worried about obsolescence. At the end of the term, they have the option to return the equipment, purchase it for its fair market value or extend the term.

The second option is a finance lease, also referred to as a dollar buyout lease. It is structured similar to a bank loan. These leases are for customers who intend to keep the equipment or plan on paying cash but want to extend their payments out.

Overcoming Resistance
Your customers will almost always have reservations that can be resolved by explaining the benefits of financing. It is your responsibility to recognize these eight hot buttons and have the right response.

Objection: “I don’t want to use up all of my cash on this one purchase.”

Response: “Financing conserves working capital.”

Financing allows your customers to conserve capital. The number one reason businesses fail is due to lack of liquidity. Maintaining ample cash balances in checking accounts should be a top priority for companies of all sizes. Financing allows your customers to conserve cash for the times they will need it the most.

Objection: “I want to keep my bank line of credit open for other business operating expenses.”

Response: “Financing preserves credit lines.”

Financing prevents your customers from exhausting lines of credit with their local banks on major purchases. Your customers will want those monies available for short-term needs or emergencies.

Objection: “I don’t want to put a bunch of money down or have to put up additional collateral.”

Response: “Financing can cover 100 percent of the purchase price.”

The Economic Stimulus Act of 2008 recently modified IRS Section 179, offering tax advantages that are only good for equipment put into service in 2008.

Financing can allow your customers to acquire the equipment they need immediately without a major cash outlay or any additional collateral than the equipment being financed.

Objection: “I only have so much money in my monthly budget for equipment.”

Response: “Payments are the same each month.”

Financing allows your customer to have a fixed payment for their budget with a locked-in interest rate.

Objection: “I want the equipment now but can’t start paying for another three months.” Or, “I have seasonal income and only want to make payments during the months when I have steady income.”

Response: “Financing allows flexibility.”

Financing can be tailored to your customer’s needs, including step-up payments, seasonal payments, deferred payments, and annual or quarterly payments.

Objection: “My business is new and I want to build up some credit for my company.”

Response: “Financing can help establish credit.”

Financing can establish credit for your customers who are newer in business.

Objection:“My accountant says I cannot add any more liabilities to our company’s balance sheet.”

Response:“Let’s discuss off-balance-sheet financing.”

Operating leases are the perfect tool for your customer to acquire new equipment without further leveraging the company’s balance sheet. If additional debt may jeopardize an existing bank borrowing covenant, an operating lease may be a great solution for your customer’s next equipment purchase.

Objection:“I am looking for ways to decrease my annual business taxes.” Or, “My accountant wants me to take advantage of the current bonus depreciation and modified Section 179.”

Response:“Here are the tax advantages to expect.”

Operating leases can be 100 percent deductible as an operational expense. Finance leases can provide substantial tax advantages as well. The Economic Stimulus Act of 2008 recently modified IRS Section 179, doubling the expensing allowance for depreciable business assets to $250,000, raising the maximum investment threshold for the allowance to $800,000, and increasing to 50 percent the adjusted basis of certain depreciable property that may be claimed as a deductible expense during the 2008 tax year. These advantages are only good for equipment put into service in 2008. In many cases, the first-year tax savings could exceed your customer’s total payments for the first year. (Please have your customer check with their tax advisor as to the specific benefits and advantages of the current tax code for their business.)

Selecting a Partner
As a distributor, selecting a financial partner is very important. Your customers are not only entrusting you to receive a good product, but to provide them with a strong financial provider. Selecting the wrong financial partner could cost you repeat sales and cause unwanted tension between you and your customer.

There is no “truth in lending” act for commercial financing.

A major requirement of a good financial partner is that they hold their own paper. There are many brokers out there who will promise the world but have absolutely no control as to which bank will purchase and service the loan. Then the customer almost always pays points and does not receive the best deal possible.

Don’t be afraid to ask about payoff penalties. Many lenders will charge borrowers large fees for early payoff of a lease or loan, and others will make them pay all of the remaining payments. Look for a partner that will discount the unearned interest back to your customers.

Ask where their billing and customer service departments are. Many large companies will outsource these functions. This makes it very difficult to resolve billing issues in a timely manner.

Ask about termination and renewal clauses. Some finance companies will give the customer a limited window of time to give notice of their intent to return or purchase the equipment. For example, they may require a certified letter to be received not more than 120 days, but not less than 90 days, prior to lease maturity. This is their way of generating added renewal income. They may also have an annual renewal clause which automatically renews a borrower’s contract for another year if they miss the response window allotted. This can cost you another sale or upgrade.

Not all finance companies are out to make a quick buck and take advantage of your customers, but it is your responsibility as a distributor to make sure that you have selected a strong and honest financial partner. Remember, there is no “truth in lending” act for commercial financing.

Financial merchandising is a very beneficial tool that equipment sales reps should be ready to pull from their back pocket at any time. After a trustworthy financial partner is chosen, they will make it easy for you to quote variable monthly payment for terms and structures catered to your customer’s needs. You just may be surprised how much easier it is to close a sale.

Material Handling Equipment Distributors Association
Meet the Author
Chris Gile is senior business development officer for Popular Equipment Finance, a subsidiary of Banco Popular North America, located in Ballwin, Missouri, and on the Web at www.poplease.com.

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