You may have started a B2B of selling large equipment, machinery, and costly technologies. As these are big deals, all-cash transactions are much challenging. Businesses may have very limited capital to buy high-end equipment. Moreover, they do not always like to apply for a loan for corporate finance.
In this situation, vendor finance is the right choice. Vendor financing is a process where manufacturers lend money to their clients. Thus, their customers can buy their technologies and machinery without any financial stress. This is how manufacturers increase the number of sales while benefiting customers.
Vendor financing can be of two types- equity and debt financing-
Equity financing– In this case, vendors provide services and products in exchange for a particular amount of the inventory, stock, and property. While the vendor has no cash, it will get the company’s share.
Debt financing– Borrowers pay the interest based on the amount owed to the vendor.
Vendor financing, also known as vendor take-back, covers 10 to 15 % of the overall transaction amount.
The major purpose of going for vendor finance is to raise the sales volume. There are several other reasons for considering it. Check out the benefits of a vendor financing program.
Sell goods at a better rate and earn more–
Vendor financing can turn out to be an incentive to customers. They do not need to make an instant payment of a big amount. But, these customers are ready to purchase goods at a higher rate with the loan amount. Therefore, manufacturers will earn higher revenue from every sale. They will easily reach their sales targets.
The best way for financing unsecured assets
Vendor financing will be the right technique to deal with unsecured and intangible assets (like intellectual property and goodwill). But, banks do not like to accept these things as collateral for commercial loans. Thus, vendor financing is different from other types of corporate finance.
Have a new source of income
By choosing the vendor finance program, your customer will repay the loan amount in monthly instalments. It will cover the chosen repayment period. Moreover, customers will pay interest to the financer. As equipment and machinery can cost high, you will get a high amount of interest every month.
Close big deals efficiently
Due to the vendor financing opportunities, customers do not need to look for other sources for corporate finance. Thus, they will save time in every deal. There is no need to deal with complicated paperwork to obtain the loan. That is why manufacturers can close deals efficiently.
Gain a high competitive edge in the market
The present marketplace is highly competitive. Companies always search for some unique ways to distinguish themselves from their competitors. In this scenario, thevendor finance program will be highly valuable to them. It will easily convince your potential customers to choose your products instead of your competitors.
Now, as a vendor, you can start funding the purchase of products by your customers. However, what will happen when the customers cannot repay the loan? Both customers and vendors have to be clear about their repayment terms. There must be a legal agreement between the two parties.
To avoid losing money, vendors can pay only a part of the overall purchase price. For instance, customers can pay 15% of the total cost of the products. The remaining amount of the total cost will be financed by the vendor. When the customer has no amount for the down payment, he can choose another investor for it. Now, you can start the vendor financing program for your business in India.