The past 18 months have had a major impact on the vendor finance market, with a number of funders withdrawing from sectors of the market, acceptance rates down, service levels impacted, relationships frayed and a number of vendors finding that the availability of funding has negatively impacted their core product sales and margins.
Communication and alignment between vendors and funders have been tested. We have seen a polarisation between relationships that have been well aligned and have strengthened, and those that have not and have suffered as a result. The stronger, successful vendor programmes will emerge next year with a more open and collaborative relationship.
From the funder’s perspective, vendor programmes need to be a partnership and not just a deal source. From the vendor’s perspective they should not be viewed as simply a deal closer and income stream. It will be interesting to see if the current environment influences the way vendor programme agreements are negotiated in 2010.
In the small ticket space, process integration is critical – many vendors have relied too much on a single funding partner to provide the IT system tools to transact flow business. The last year has left vendors feeling exposed, and as a result they have the desire to take more control over the front end of finance sales. This will see some vendors moving towards a panel of funders, developing or outsourcing front end tools and some taking steps towards a captive type operation.
Bank-owned lessors are under increased pressure to focus on the bank’s own customers with low acquisition cost and established client relationships. This may have an impact next year on the appetite of bank-owned lessors to participate in the market.
Other challenges that funders have faced include understanding the profitability of their own business, where they make their money and where they should allocate capital for future profitable growth. The current level of strategic review and business refocusing may result in a number of the funders withdrawing from markets or vendors.
As a consequence, there is an opportunity in 2010 for new entrants to come into the market, if they have capital available and an appetite to grow. They will be going in with their eyes open from a credit perspective, have the potential to make good margins and not have the baggage of the past 18 months to address.
The author is partner at the leasing consultancy Invigors and a former marketing director at GE Capital