• Views from the flipside
  • The 4 types of asset finance and when you should offer them

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Views from the flipside

Asset finance is a form of finance used by businesses to obtain a wide range of items necessary to operate efficiently and effectively within their sector. Wholly or largely secured on the assets being financed, the need for additional collateral is significantly reduced and gives your customers the flexibility to replace or upgrade assets during or at the end of the primary period of the agreement. By offering asset finance as a way of purchasing your equipment, suppliers can increase sales, reduce their sales cycles and improve their cash flow.

What asset finance should you offer?

There are four principal forms of asset financing that equipment suppliers can offer their customers:

1. Finance Lease This facility transfers largely all the rights and obligations of ownership to the Lessee (Business) and can be for any length of time. During the life of the agreement the full value of the Asset appears on the Lessee’s balance sheet as an asset and liability, and an element of the rental treated as a business expense and passed through the profit and loss account. The lessee is responsible for maintaining and insuring the asset during the life of the agreement.
2. Hire Purchase This facility enables a business to acquire the assets they need where the Lessor (Finance Company) purchases the equipment on behalf of the Lessee. The Lessor owns the asset until the final payment is made and at this point the Lessee is given an option to purchase the asset for a nominal sum. During the life of the agreement the full value of the Asset appears on the Lessee’s balance sheet as an asset and liability and an element of the rental treated as a business expense and passed through the profit and loss account.
3. Operating Lease This facility is suitable if the Lessee will not need the equipment for its entire working life. The Lessor will take the asset back at the end of the agreement and in some cases may responsible for the maintenance but typically maintenance responsibility will reside with the Lessee. Payments appear in the Lessee’s profit and loss account and as the asset is only kept for a nominated period, it does not appear on the Lessee’s balance sheet.
4. Commercial Loan Occasions arise where a customer only requires a short payment period. In these situations a loan product is needed. Loan products can be tailored to meet a customer’s requirements with terms from 3 to 12 months.

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When should Equipment Suppliers offer asset finance?

Vendor_Blog.pngPut simply, you should promote an asset or equipment finance solution as soon as your prospect shows any signal of an intent to buy.

By providing the benefits and capabilities of asset finance early, it is easy to demonstrate how it can support their purchasing plans. It will also influence the specification of equipment the customer will ultimately require.

Buyers will inevitably seek out a solution that provides value at a price they are willing to pay; this means that more often than not you are one of several providers looking to win the business.

Promoting asset finance early in the sales cycle delivers greater control by breaking down the total cost of purchase into manageable payments for the customer. Doing this increases your ability to tailor a solution to meet a customer’s individual requirements.

This is an excerpt from our white paper, download Winning More Business: Offering finance to your customers to learn more. Discover how the LDF Partner Programme can help you reduce your cash conversion cycle, increase sales and protect margins.

By Rob Hulse
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