Vendor finance: 5 benefits for you and your customers

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Vendor finance solutions enable you to provide payment plans to your clients and customers. Here are five of the main benefits of offering this service.

iStock 499983543 Vendor

You may not have heard of 'vendor finance' if you operate outside the financial services sector, but it could provide significant benefits to your business.

Vendor finance refers to a range of solutions that enable you to offer finance options to your clients for their equipment and machinery purchases. Here are five advantages of this service.   

1. Boost average order value (AOV)


The most obvious benefit of vendor finance is that customers can purchase goods and services they wouldn't normally have the upfront capital to afford.

AOV increases 15 per cent among consumers who are offered credit options, according to a Forrester study, while claims SME suppliers can boost average order size by as much as 120 per cent. 

2. Improve client retention


Extending finance helps build stronger relationships with your clients, who will be more likely to rely on you for their future equipment needs. Establishing trust also means you can increase their credit limit while still remaining confident they will meet their payment obligations.

Furthermore, vendor finance enables SME suppliers to compete with larger rivals that offer similar services. 

3. Take advantage of market confidence


Capital expenditure (Capex) is on the rise in Australia. Investment on equipment, plant and machinery rose 8.2 per cent between the June quarters of 2017 and 2018, according to the latest Australian Bureau of Statistics data.

Finance options allow you to maximise profits during periods of positive business activity. Similarly, your clients can invest in their growth at the optimal time, even when cash flow is a problem. 

4. Prevent equipment from becoming obsolete


Businesses that are forced to secure upfront capital before they can purchase new equipment risk their existing apparatus breaking down or becoming obsolete. This could bring production grinding to a halt and even cause health and safety problems when certain machinery reaches its end of life.

Support your clients' growth - and by extension your own - by ensuring they have access to the latest technology and equipment to sustain and expand their business. 

5. Maximise instant asset write-off benefits


Until June 30 2019, small businesses can immediately deduct the cost of depreciating assets worth less than $20,000, provided they are bought and used (or installed ready for use) by the end of the financial year.

This has proven a popular ATO policy among SMEs, which - in conjunction with comprehensive vendor finance options - could help you encourage more sales. 

Is Vendor Finance right for you?


The future looks bright for Capex over the coming months. In fact, illion's Business Expectations Index reached 15-year highs for the December quarter, with the company noting a significant rise in investment intentions.

Now may be the time to consider offering vendor finance to clients, as more businesses look to take advantage of current market conditions.

Contact Classic Funding Group to see how our solutions can help you meet this demand.